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## Details of Balances

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**1. **Details of Balances Is the balance misstated?
result is in dollars!

**3. **Details of Balances Nonstatistical sampling 14 steps (cont.)
8. Estimate misstatements in the population
9. Determine sample size
10. Select sample
11. Perform tests
12. Generalize from the sample to population
13. Analyze misstatements
14. Decide acceptability of population

**4. **Details of Balances Stratified sampling can be used to emphasize certain population items
subdivides population
Sampling unit can be:
customer account balance
individual invoice
ARIA = acceptable risk of incorrect acceptance

**5. **Details of Balances nonstatistical sampling
Generalizing to population
point estimate is simple percentage of error times dollars in population
evaluate difference between point estimate and tolerable misstatement

**6. **Details of Balances Actions when a population is rejected
1. wait until other areas of audit complete
2. perform tests on problem areas
3. increase sample size
4. adjust account balance
5. request client correct errors in population
6. refuse to give unqualified report

**7. **Statistical SamplingBalances Monetary Unit Sampling
same as:
dollar unit sampling
cumulative monetary amount sampling
sampling with probability proportional to size
Use the 14 steps approach
Sampling unit is individual dollar
Population size is “all dollars”

**8. **Statistical SamplingBalances Use the 14 steps approach(continued)
Preliminary judgment of materiality is used rather than tolerable misstatement
Sample selection is done using probability proportional to size sample selection
See Table 17-4

**9. **Statistical SamplingBalances Use the 14 steps approach(continued)
Generalization is done with Monetary Unit sampling
Attributes sampling tables (p. 470)
convert results to dollars
results called misstatement bounds

**10. **Statistical Sampling Assumption 1- 100% misstatement
upper 1,200,000 x 3% x 100% = $36,000
lower 1,200,000 x 3% x 100% = $36,000
Assumption 2 - 10% misstatement
upper 1,200,000 x 3% x 10% = $3,600
lower 1,200,000 x 3% x 10% = $3,600
Assumption 3 - 20% over 200% under
upper 1,200,000 x 3% x 20% = $7,200
lower 1,200,000 x 3% x 200% = $72,000

**11. **Statistical SamplingBalances When misstatements are found MUS
1. overstatement and understatement are dealt with separately
2. a different misstatement assumption is made for each misstatement, including zero misstatements
3. layers of the computed upper exception rate
See Table 17-6

**12. **Statistical SamplingBalances When misstatements are found MUS (cont.)
4. Misstatement assumptions must be associate with each layer
See Table 17-7
Acceptability: MUS
Lower misstatement bound and upper misstatement bound must fall between tolerable misstatement acceptable Fig 17-3

**13. **Statistical SamplingBalances Sample Size :MUS
Formula on page 538
Use of MUS
increases likelihood of selecting high dollar items
reduces cost, fewer items to test
relatively easy to use
statistical conclusion

**14. **Variables Sampling uses concept of frequency distribution
formulas to determine confidence intervals
Three kinds of variables sampling
1. Difference estimation used when there is recorded value and audited value for each item in sample (point estimate plus plus precision interval)

**15. **Variables Sampling Three kinds of variables sampling (cont.)
2. Ratio estimation - point estimate determined differently - sample dollars misstated multiplied by total recorded population book value
3. Mean-per-Unit Estimation - concern for audited value rather than misstatement- precision interval determined by audited value of sample rather than misstatements

**16. **Sampling Risks ARIR = Acceptable risk of incorrect rejection (was correct)
ARIA =Acceptable risk of incorrect acceptance (was in error)

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