Factors that Affect Audit Sample Size
Lesson:
Auditors don't have the time and energy to examine everything. They need to test subsets of items, called samples.
How do auditors know how many samples to examine? In general, auditors try to balance the costs of examination with potential benefits of examination.
The greater the odds that a smaller sample size will miss something important, the more important it is to increase the sample size.
You're an auditor explaining the tasks you completed on a recent audit of Llamas, LLC.
Here are the relevant facts:
- You noticed that errors in the area being tested were not particularly important to the outcome of the audit.
What factor affected the number of samples required, and did it necessitate less or more testing?
Answer:
- It was tolerable misstatement - the more important the outcome of the portion of an audit, the more tests are required.
Explanation:
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Auditors have to spend their efforts in areas where they are most likely to find serious issues. Imagine that you have been assigned to audit two accounts for a firm: a billion-dollars in accounts receivable, and a thousand dollars in lunch reimbursements.
The lunch reimbursements add up to a very small account and aren't worth the time to investigate when compared to the huge sums in accounts receivable.