dr. will yancey, cpa cathleen bucholtz, cpa true partners consulting audits act iii. sampling 2009...
TRANSCRIPT
DR. WILL YANCEY, CPA
CATHLEEN BUCHOLTZ, CPATRUE PARTNERS CONSULTING
Audits Act III. Sampling
2009 Annual Conference
Parable of the Footballs and the Fish
You are asked to determine the weight of 1,000 footballs. You know they are identical in weight. You can weigh only one ball at a time. How many must you weigh?
You are asked to determine the weight of 1,000 different fish taken from a lake. They are highly variable in weight. You can weigh only one fish at a time. How many must you weigh?
Suppose we can group and count the fish before we weigh them. What can we do so that we do not need to weigh so many?
Sampling Uncashed Checks
Suppose the UP auditor sees thousands of uncashed checks for the past five years, wants to sample them, and project the UP-to-Revenue ratio onto an earlier period with unavailable records.
Should sampling be allowed?Possible ways to group by attribute or stratify
By account type: Payroll, A/P, rebates, etc. By status type: outstanding, void, stop, cancelled, etc. By days outstanding By dollar amount
What is the best sample size?
Larger samples take more time. Approximately 1 hour of staff time per sample item.
Smaller samples may be less accurate. By random chance a small sample may produce an
estimate that is significantly overstated or understated. Small samples are more sensitive to outliers (such as
unusually large items distorting the results).
Start with a smaller sample, and expand later? Yes, that is reasonable. But some auditors disagree with that.
Accuracy and Precision
Accuracy is how close the estimates are to the true value. But in large populations, we never know the true
value unless we examine every single item.
Precision is how close the results are to each other.High accuracy Low accuracyLow precision High precision
Validity
Do the results measure what they intend to measure?Sampling risk (“random draw”):
Random chance that randomly selected sample has much higher or lower percentage of UP than population.
Increasing sample size reduces sampling risk.Measurement error (“garbage in, garbage out”):
Auditor conclusion contradicts evidence presented by holder.
Non-response (“unavailable documents”): Are available records representative of unavailable
records?Coverage (“right population”):
Journal entries that are not transactions with payees.
Validity and Precision
Assume true value is $50.
Both of these statements are valid: A. Estimate is between $0 and $100 ($50 ± 100%). B. Estimate is between $45 and $55 ($50 ± 5%).
B has much better precision.
Assessment and Precision
Assume you do not know the true value.
Statistical analysis of the sample reports 90% confidence that this interval contains the true value:$108 K to $132 K [also known as $120 K ± $12 K or $120K ± 10% [
Where should the assessment be made? $108K or $120K or $132K
QUESTIONS
Contact Information
DR. WILL YANCEY, [email protected]
(972) 387-8558
CATHLEEN BUCHOLTZ, CPATRUE PARTNERS CONSULTING
[email protected] (213) 417-2501
DR. WILL YANCEY, [email protected]
CATHLEEN BUCHOLTZ, CPATRUE PARTNERS CONSULTING
Audits Act III. Sampling