Audit Sampling Concepts CAS 265 Communication deficiencies

Audit Sampling Concepts CAS 265 – Communication deficiencies in internal control to those charged with governance and management. CAS 330 – The auditor’s response to assessed risks. CAS 530 – Audit sampling Sampling 1

Importance of Sampling • Auditor does not look at everything – How does this affect the opinion? • Auditor CANNOT look at everything – Why? Sampling 2

Purpose of Sampling • The auditor examines only a portion of the population in order to estimate • How much is a portion? Sampling 3

When to Do Sampling When: 1. The nature and materiality of the balance or class of transactions does not demand a 100% audit 2. A decision must be made about the balance or class of transactions. 3. The time and cost to audit 100% of the population would be too great Sampling 4

When is Sampling Used? To conduct: 1. Walk through tests 2. For tests of controls 3. Tests of details Sampling 5

Representative Sampling • Having a representative sample is important • What does representative mean? Sampling 6

• Non-sampling risk: • Sampling risk: Sampling 7

Statistical Sampling • Uses the laws of probability for selecting and evaluating a sample from a population • Selected at random • Statistical calculations are used Sampling 8

Statistical vs. Non-Statistical Similarities • Both require a structured process Differences • Sampling risk cannot be quantified • The use of stratification Sampling 9

Non-Probabilistic Sample Selection Methods • Directed sample selection – When used? • Auditor often able to identify items likely to contain errors • Items containing selected characteristics • Large dollar item coverage Sampling 10

• Block sample selection • A selection of several items in a sequence • Reasonable number of blocks must be chosen • Haphazard sample selection • Auditor goes through the population and haphazardly selects items Sampling 11

Probabilistic Sample Selection Methods • Sampling risk requires • Simple random sample selection • Every member of the population has an equal chance of being selected • Systematic sample selection – Auditor calculates an interval and use the interval to select sample Sampling 12

– Major problem with systematic sampling is bias • Once the first item is chosen • No problem if • But some characteristics Sampling 13

Probability Proportionate-to-Size Sampling Methodology • A key statistical methodology – also known as – the sampling unit is – MUS allows the result to be stated Sampling 14

Attribute Sampling Methodology • Another key statistical methodology – very useful for tests of controls – The main question to be answered is – If the auditor can allow 5% deviations Sampling 15

Advantages of Statistical Sampling Provides: • for quantitative evaluation of the sample results • a more defensible expression of the test results • It is more objective Sampling 16

Disadvantages of Statistical Sampling • Requires random sample selection which may be more costly and time consuming. • Might require additional training costs for staff members to use statistics or specialized software Sampling 17

Advantages of non-statistical sampling • Allows the auditor to inject his or her subjective judgment in determining the sample size • May be designed so that it is equally effective and efficient as statistical sampling while being less costly Sampling 18

Disadvantages of non-statistical sampling • Cannot draw objectively valid statistical inferences from the sample results • Cannot quantitatively measure and express sampling risk. Sampling 19

The Main Phases of the Sampling Process Both statistical and non-statistical methods 1. Planning the sample 2. Selecting the sample 3. Performing the tests 4. Evaluating the results Sampling 20

Sampling Process • Fourteen steps in the sampling process. • Look at tests of controls versus tests of details Sampling 21

1. State the Objectives of the Test of control: • Are the controls working as specified? • Are there monetary errors or fraud or other irregularities Test of detail of balance: • Auditor wants to determine the maximum amount of overstatement and understatement that could exist based on the sample Sampling 22

2. Decide if Audit Sampling Applies Test of control: • some controls can be sampled • others cannot be Test of detail of balance: • sampling test of details depends on the nature of the population • high volume can be Sampling 23

3. Define attributes and exception or error conditions Planning term: Test of control Test of detail of balance Define the item of interest Identify the characteristic or attribute of interest Individual dollars Define exceptions or errors Define the control deviation or exception Normally, any monetary difference or error Sampling 24

4. Define the population • Population can be defined in a way to suit the audit tests • Must sample from the entire population as defined • In testing controls over sales, what is the population? • In testing details in accounts receivable it is the recorded dollar population • Most populations can be stratified, if needed. Sampling 25

5. Define the sampling unit Tests of controls: Test of detail of balance: • Usually a physical unit • If MUS • If non-statistical sampling Sampling 26

6. Specify Tolerable Exception Rate (TER) or specify Tolerable Misstatement (materiality) (TM) Test of control • TER Test of detail of balance • TM or Materiality is used • As TER increases • These decisions require the use of Sampling 27

7. Specify ARIA (ARACR) Test of control • What is ARACR? • Acceptable Risk of Assessing Control Risk Too Low Test of detail of balance • What is ARIA? • Acceptable Risk of Incorrect Acceptance Sampling 28

Test of control • Assume – TER 6% Test of detail of balance • If ARIA changes from 10% to 5% – Since assurance required increases – ARACR 10% – When controls are good – But unknown to the auditor the true error rate is 8% Sampling 29

8. Estimate population exception rate or misstatements Test of control Test of detail • Estimated population error rate (EPER) • Provide an advance estimate of the total dollar error, i. e. misstatements, in the population • The lower the EPER, the smaller the sample size Sampling 30

9. Determine the initial sample size • For non-statistical or judgmental sampling, professional judgment is used to calculate the sample size • For statistical sampling, mathematical formulae are used, either in specially prepared tables or using software designed for audit sampling • For stratified sampling, the sample is allocated among the strata Sampling 31

10. Select the sample • Using the number of items determined in Step #9, choose the items from the population using the sampling unit defined in Step #5 • Use probabilistic or non-probabilistic methods • To enable quantification of sampling risk, probabilistic, i. e. statistical, methods must be used Sampling 32

11. Perform the audit procedures • For test of controls, examine each item for the attribute defined in Step #3, recording all exceptions found • For test of details, apply the audit procedures designed in the audit program Sampling 33

12. Generalize from the sample to the population • Test of controls sample error rate (SER) • But that is not necessarily equal to the actual population rate • In practice, auditors tend to test controls when they expect no exceptions • But ultimately, the method of generalization depends on the sampling methodology used Sampling 34

• When generalizing tests of details, auditors deal with • Misstatements found are projected from the sample results to the population • One method - calculate a point estimate • Another method - MUS Sampling 35

• To calculate the point estimate: – (Client Misstatement / Recorded Value of Sample) x Recorded Book Value of the Population – Thus for a misstatement of $500 in A/R with a sample value of $10, 000 and a total book value of $25, 000 – Note that if the population is divided into strata – The total point estimate may not be an adequate result for the population – The auditor must consider this fact Sampling 36

Calculating Point Estimate for a population Example of Errors Found Dollars Audited Stratum Sample Size Book Value of Stratum Recorded Value Audited Value Client Misstatement 1 3 $88, 955 $91, 695 $(2, 740) 2 6 71, 235 43, 995 43, 024 971 3 6 47, 105 13, 105 10, 947 2, 158 Total 15 $207, 295 $146, 055 $145, 666 $389 Example of Point Estimate Calculation Stratum Client Misstatement / Recorded Value from Sample 1 $(2, 740)/$88, 955 2 3 Total x Recorded Book Value for Stratum = Point Estimate of Misstatement $88, 955 $(2, 470) 971/43, 995 71, 235 1, 572 2, 158/13, 105 47, 105 7, 757 $6, 589 Sampling 37

13. Analyze exceptions or misstatements Test of control Test of detail of balance • What breakdown in internal controls caused the exceptions? • Were the misstatements caused by control exceptions? • Should additional substantive testing be conducted because of these results? • Is additional substantive testing required? Sampling 38

14. Decide the acceptability of the population Test of control • If TER is sufficiently larger than SER • If TER – SER is too small Test of detail of balance • Compare the difference between the projection to the population • If projection is greater than materiality level Sampling 39

• What if the auditor decides the population is NOT acceptable? What to do? – 1. Revise TER (tolerable error rate), TM, or ARIA (the risks of accepting incorrect populations) – 2. Expand the sample size. – 3. Revise assessed control risk. – 4. Report weaknesses in management letter. Sampling 40

Problem 11 -29, p. 362 • • For the examination of the financial statements of Scotia Inc. , Rosa Schellenberg, a public accountant, has decided to apply non-statistical audit sampling in the tests of sales transactions. Based on her knowledge of Scotia’s operations in the area of sales, she decides that the estimated population deviation rate is likely to be 3 percent and that she is willing to accept a 5 percent risk the true population rate is not greater than 6 percent. Given this information, Rosa selects a random sample of 150 sales invoices from the 5, 000 prepared during the year and examines them for exceptions. She notes the following exceptions in her working papers. There is no other documentation. REQUIRED a. Which of the invoices in the table should be defined as an exception? b. Explain why it is inappropriate to set a single acceptable TER and EPER for the combined exceptions. c. State the appropriate analysis of exceptions for each of the exceptions in the sample. Invoice No: Comment 5028 Sales invoice had incorrect price, but a subsequent credit not was sent out as a correction. 6791 Voided sales invoice examined by auditor. 6810 Shipping document for a sale of merchandise could not be located. 7364 Sales invoice for $2, 875 has not been collected and is six months past due. 7625 Client unable to locate the printed duplicate copy of the sales invoice. 8431 Invoice was dated three days later than the date of the shipping document. 8528 Customer purchase order is not attached to the duplicate sales invoice. 8566 Billing is for $100 less than it should be due to a pricing error. 8780 Client unable to locate the printed duplicate copy of the sales invoice. 9169 Credit is not authorized, but the sale was only for $7. 65. Sampling 41

Problem 11 -28, page 363 You have just completed the accounts receivable confirmation process in the audit of Danforth paper Company Ltd. , a paper supplier to retail shops and commercial users. Following are the data related to the process: Accounts receivable recorded balance Number of accounts $2, 760, 000 7, 320 A non-statistical sample was taken as follows: All accounts over $10, 000 (23 accounts) $465, 000 77 accounts under $10, 000 $81, 500 Materiality $100, 000 Inherent and control risk are both high No relevant analytical procedures were performed. The table below gives the results of the confirmation procedures REQUIRED Evaluate the results of the non-statistical sample. Consider both the direct implications of the misstatements found and the effect of using a sample. Sampling 42

Recorded Value Items over $10, 000 Audited Value $465, 000 $432, 000 81, 500 77, 150 Item 12 5, 120 4, 820 Item 19 485 385 Item 33 1, 250 Item 35 3, 975 3, 875 Item 51 1, 850 1, 825 Item 59 4, 200 3, 780 Item 74 2, 405 0 19, 285 14, 935 Items under $10, 000 Individual misstatements for items under $10, 000 Sampling 43

Problem 11 -30 (page 363) You have been asked to do planning for statistical testing of the audit of cash receipts. Following is a partial audit program for the audit of cash receipts. 1. Review the cash receipts journal for large and unusual transactions. 2. Trace entries from the prelisting of cash receipts to the cash receipts journal to determine whether each is recorded. 3. Compare customer name, date, and amount on the prelisting with the cash receipts journal. 4. Examine the related remittance advice for entries selected from the prelisting to determine whether cash discounts were approved. 5. Trace entries from the prelisting to the deposit slip to determine whether each has been deposited. REQUIRED a. Identify which audit procedures can be tested using attribute sampling. Justify your response. b. State the appropriate sampling unit for each of the tests in part (a). c. Define the attributes that you would test for each of the tests in part (a). State the audit object associated with each of the attributes. d. Define exception conditions for each of the attributes that you have described in part (c). e. Which of the exceptions would be indicative of potential fraud? Justify your response. Sampling 44

Problem from another text. The following are auditor judgments and audit sampling results for six populations. Assume large population sizes. 1 2 3 4 5 6 TER (in percentage) 6 3 8 5 20 15 ARIA (in percentage) 5 5 10 10 100 60 100 20 60 2 0 1 4 1 8 Actual sample size Actual number of exceptions in the sample REQUIRED a. For each population, did the auditor select a smaller sample size than is indicated by using attribute sampling tables for determining sample size? (Assume K=0 in sample size planning). Evaluate, selecting either a larger or smaller size than those determined in the tables. b. Calculate Sample Deviation Rate (SDR) and Upper Error Limit (UEL) for each population. c. For which of the six populations should the sample results be considered unacceptable? Note: R is the confidence factor from the table in slide 46. P is the TER (see text) Thus n = R/P Sampling 45

Same Table 11 -8, Page 355 – for calculating R Number of Errors Confidence Factors for MUS Sample Size Design (ARIA in brackets) 99% (1%) 97. 5% (2. 5%) 95% (5%) 90% (10%) 85% (15%) 80% (20%) 75% (25%) 0 4. 51 3. 69 3. 00 2. 31 1. 90 1. 61 1. 39 1 6. 64 5. 58 4. 75 3. 89 3. 38 3. 00 2. 70 2 8. 41 7. 23 6. 30 5. 33 4. 73 4. 28 3. 93 3 10. 05 8. 77 7. 76 6. 69 6. 02 5. 52 5. 11 4 11. 61 10. 25 9. 16 8. 00 7. 27 6. 73 6. 28 5 13. 11 11. 67 10. 52 9. 28 8. 50 7. 91 7. 43 6 14. 58 13. 06 11. 85 10. 54 9. 71 9. 08 8. 56 7 16. 00 14. 43 13. 15 11. 78 10. 90 10. 24 9. 69 8 17. 41 15. 77 14. 44 13. 00 12. 08 11. 38 10. 81 9 18. 79 17. 09 15. 71 14. 21 13. 25 12. 52 11. 92 10 20. 15 18. 40 16. 97 15. 41 14. 42 13. 66 13. 03 In this example R will either be 3. 00, or 2. 31, depending on the value of ARIA Sampling 46

Sample size ACTUAL NUMBER OF DEVIATIONS FOUND 0 1 2 3 4 5 6 7 8 9 10 5 PERCENT RISK OF OVER RELIANCE (RIA or Beta Risk) 20 25 14. 0 11. 3 21. 7 17. 7 28. 3 23. 2 34. 4 28. 2 40. 2 33. 0 45. 6 37. 6 50. 8 42. 0 55. 9 46. 3 60. 7 50. 4 65. 4 54. 4 69. 9 58. 4 30 35 40 45 50 55 60 65 70 75 80 90 100 125 150 200 300 400 500 9. 6 8. 3 7. 3 6. 5 5. 9 5. 4 4. 9 4. 6 4. 2 4. 0 3. 7 3. 3 3. 0 2. 4 2. 0 1. 5 1. 0 0. 8 0. 6 14. 9 12. 9 11. 4 10. 2 9. 2 8. 4 7. 7 7. 1 6. 6 6. 2 5. 8 5. 2 4. 7 3. 8 3. 2 2. 4 1. 6 1. 2 1. 0 19. 6 17. 0 15. 0 13. 4 12. 1 11. 1 10. 2 9. 4 8. 8 8. 2 7. 7 6. 9 6. 2 5. 0 4. 2 3. 2 2. 1 1. 6 1. 3 23. 9 20. 7 18. 3 16. 4 14. 8 13. 5 12. 5 11. 5 10. 8 10. 1 9. 5 8. 4 7. 6 6. 1 5. 1 3. 9 2. 6 2. 0 1. 6 28. 0 24. 3 21. 5 19. 2 17. 4 15. 9 14. 7 13. 6 12. 7 11. 8 11. 1 9. 9 9. 0 7. 2 6. 0 4. 6 3. 1 2. 3 1. 9 31. 9 27. 8 24. 6 22. 0 19. 9 18. 2 16. 8 15. 5 14. 5 13. 6 12. 7 11. 4 10. 3 8. 3 6. 9 5. 2 3. 5 2. 7 2. 1 35. 8 31. 1 27. 5 24. 7 22. 4 20. 5 18. 8 17. 5 16. 3 15. 2 14. 3 12. 8 11. 5 9. 3 7. 8 5. 9 4. 0 3. 0 2. 4 39. 4 34. 4 30. 4 27. 3 24. 7 22. 6 20. 8 19. 3 18. 0 16. 9 15. 9 14. 2 12. 8 10. 3 8. 6 6. 5 4. 4 3. 3 2. 7 43. 0 37. 5 33. 3 29. 8 27. 1 24. 8 22. 8 21. 2 19. 7 18. 5 17. 4 15. 5 14. 0 11. 3 9. 5 7. 2 4. 8 3. 6 2. 9 46. 6 40. 6 36. 0 32. 4 29. 4 26. 9 24. 8 23. 0 21. 4 20. 1 18. 9 16. 9 15. 2 12. 3 10. 3 7. 8 5. 2 3. 9 3. 2 50. 0 43. 7 38. 8 34. 8 31. 6 28. 9 26. 7 24. 7 23. 1 21. 6 20. 3 18. 2 16. 4 13. 2 11. 1 8. 4 5. 6 4. 3 3. 4 Sampling 47

ACTUAL NUMBER OF DEVIATIONS FOUND Sample size 0 1 2 3 4 5 6 7 8 9 20 10. 9 18. 1 10 % Risk of Incorrect Acceptance (RIA or Beta Risk) 24. 5 30. 5 36. 1 41. 5 46. 8 51. 9 56. 8 61. 6 25 30 35 40 45 50 55 60 65 70 75 80 90 100 125 150 200 300 400 500 8. 8 7. 4 6. 4 5. 6 5. 0 4. 6 4. 2 3. 8 3. 5 3. 3 3. 1 2. 9 2. 6 2. 3 1. 9 1. 6 1. 2 0. 8 0. 6 0. 5 14. 7 12. 4 10. 7 9. 4 8. 4 7. 6 6. 9 6. 4 5. 9 5. 5 5. 1 4. 8 4. 3 3. 9 3. 1 2. 6 2. 0 1. 3 1. 0 0. 8 20. 0 16. 8 14. 5 12. 8 11. 4 10. 3 9. 4 8. 7 8. 0 7. 5 7. 0 6. 6 5. 9 5. 3 4. 3 3. 6 2. 7 1. 8 1. 4 1. 1 24. 9 21. 0 18. 2 16. 0 14. 3 12. 9 11. 8 10. 0 9. 3 8. 7 8. 2 7. 3 6. 6 5. 3 4. 4 3. 4 2. 3 1. 7 1. 4 29. 5 24. 9 21. 6 19. 0 17. 0 15. 4 14. 1 12. 9 12. 0 11. 1 10. 4 9. 8 8. 7 7. 9 6. 3 5. 3 4. 0 2. 7 2. 0 1. 6 34. 0 28. 8 24. 9 22. 0 19. 7 17. 8 16. 3 15. 0 13. 9 12. 1 11. 3 10. 1 9. 1 7. 3 6. 1 4. 6 3. 1 2. 4 1. 9 38. 4 32. 5 28. 2 24. 9 22. 3 20. 2 18. 4 16. 9 15. 7 14. 6 13. 7 12. 8 11. 5 10. 3 8. 3 7. 0 5. 3 3. 5 2. 7 2. 1 42. 6 36. 2 31. 4 27. 7 24. 8 22. 5 20. 5 18. 9 17. 5 16. 3 15. 2 14. 3 12. 8 11. 5 9. 3 7. 8 5. 9 3. 0 2. 4 46. 8 39. 7 34. 5 30. 5 27. 3 24. 7 22. 6 20. 8 19. 3 18. 0 16. 8 15. 8 14. 1 12. 7 10. 2 8. 6 6. 5 4. 3 3. 3 2. 6 50. 8 43. 2 37. 6 33. 2 29. 8 27. 0 24. 6 22. 7 21. 0 19. 6 18. 3 17. 2 15. 4 13. 9 11. 2 9. 4 7. 1 4. 7 3. 6 2. 9 10 66. 2 54. 8 46. 7 40. 6 35. 9 32. 2 29. 2 26. 7 24. 6 22. 8 21. 2 19. 8 18. 7 16. 7 15. 0 12. 1 10. 1 7. 6 5. 1 3. 9 3. 1 Sampling 48

Problem 12 -24, page 404 (12 th. Edition) Lenter Supply Corp. is a medium sized distributor of wholesale hardware supplies in southern Manitoba. It has been a client of yours for several years and has instituted excellent internal control for the control of sales, at your recommendation. In providing control over shipments, the client has prenumbered “warehouse removal slips” that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. After shipment, two copies of the warehouse removal slip are sent to billing for the computerized preparation of a sales invoice. One copy is stapled to the duplicate copy of the prenumbered sales invoice, and the other copy is filed numerically. In some cases more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 14682 and the largest is 37521. The smallest invoice number is 47821 and the largest is 68507. In the audit of sales, one of the major concerns is the effectiveness of the control in making sure all shipments are billed. The auditor has decided to use attribute sampling in testing internal control. Sampling 49

(a) State an effective audit procedure for testing whether shipments have been billed. What is the sampling unit for the audit procedure? (b) Assuming the auditor expects no deviations in the sample but is willing to accept a TDR of 3%, at a 10% ARACR, what is the appropriate sample size? Sampling 50

Effect of population size -Initial sample size only -Possible to make adjustment to initial sample size based on overall population size -Finite correction factor n = n’ 1 + n’/N n = revised sample size n’ = initial sample size N = population size Sampling 51

From the problem 12 -24 Population is n’ = Thus revised sample size is Sampling 52

c) Use of a random number table – A one-to-one correspondence between warehouse removal slip – How is this correspondence achieved? Sampling 53

37039 Random Number Table 64673 31546 99314 66854 97855 25145 98433 97965 78049 50203 Random Stab 97547 84834 54725 68548 67830 25658 23009 18864 81545 14624 91478 51584 65866 82933 17563 08509 66754 76918 93545 25697 23308 77785 78825 85959 07734 48130 52357 58210 63282 48243 65047 40059 84350 30954 86723 50188 67825 67241 51637 36464 22554 18934 54031 91500 98305 86160 64998 34535 48722 08009 92250 49807 04093 60988 00666 14021 71126 35062 60029 29255 65859 77818 58163 60873 18514 16237 50014 66023 04458 57510 43373 00463 21428 61862 36314 58939 13906 14742 63119 30452 95848 35936 94874 09541 09712 28288 71761 23308 01715 37714 60341 95755 58533 87901 95482 52174 87002 26507 91260 30507 11879 61500 78938 64257 56864 35314 12763 71312 93218 21554 29631 64433 99705 35793 70445 06937 02268 71546 43671 24841 54545 57905 42274 64055 04779 04470 72347 23915 88729 56774 75463 49498 38405 11168 96129 77112 40704 07318 94550 34348 92277 48823 44623 23299 81191 57115 65963 02843 45557 21027 50789 39359 33299 07923 77087 68111 12717 59872 75126 10909 75305 56201 86774 00808 03676 53289 22811 06926 01312 97723 39751 56093 16623 50848 48006 56640 58302 17849 93982 58200 27890 52236 96701 66451 58367 28825 65756 94971 32143 66577 96509 50273 94758 05441 68583 21363 61566 08845 10399 21108 53657 61962 32260 17775 41361 60119 Population of Warehouse Removal Slips 14, 682 – 37, 521 Sampling 54

Upper Exception Limit • • Sample size = TER = ARACR = Number of deviations = • Using the following tables: • UEL = • Are the controls working? Sampling 55

Problem 13 -21, Page 439, Canadian 11 th. Edition a. For each of the following independent problems, design an unbiased random sampling plan using an electronic spreadsheet or a random number generator. The plan should include defining the sampling unit and establishing a numbering system for the population. After the plan has been designed, select the sample using the computer. Assume that the sample size is 50 for each od (1) thorough (4). 1. 2. 3. 4. b. Prenumbered sales invoices in a sales journal where the lowest number is 1 and the highest is 6, 211. Prenumbered bills of lading where the lowest document number is 21, 926 and the highest is 28, 511 Accounts receivable on 10 pages with 60 lines per page except the last page, which has only 36 full lines. Each line has a customer name and an amount receivable. Prenumbered invoices in a sales journal where each month starts over with number 1. (Invoices for each month are designated by the month and the document number. There is a maximum of 20 pages per month with a total of 185 pages for the year. All pages have 75 invoices except for the last page for each month. Using systematic sampling, select the first five sample items for population (1). Sampling 56

Problem 11 -28, Page 363 Lam, PA, is auditing the financial statements of his client, Harvesters Ltd. , a company that sells and distributes agricultural equipment across Canada. Lam has performed a preliminary evaluation of the company’s internal control over sales transactions, and has concluded that the quality of system design is very good. The system was developed for the client and installed by a wellrespected consulting firm, and the system relies heavily on automated information systems. Lam decides that performing tests of control using computer-assisted audit techniques would likely be cost-effective. In addition, after completing his assessment of control risk over revenue transactions, Lam plans to use monetary-unit sampling to verify the client’s recorded accounts receivable at year end. In planning the engagement, Lam has assessed materiality to be $175, 000. Required: Explain the basic principles of sample selection for monetary unit (dollar unit) sampling. Also discuss how computer-assisted audit techniques could be used to assist in sample selection, assuming that the population of year -end accounts receivable is available to Lam as a data file compatible with his software. Assume that the client’s recorded accounts receivable total $2, 000 at year end and that Lam examines a valid random sample of 50 dollar units, and finds two errors as follows: Account Number 26751 Account Number 87523 Recorded Amount $20, 000 $10, 000 Amount conformed by customer $10, 000 Nil Both errors were caused by the client’s failure to record equipment returned by customers, where the equipment was deemed to be defective. The client agrees with the customer’s decision in both cases. What further action is required on the part of the auditor with respect to these errors? (Extract from CGA Canada Examinations. ) Sampling 57