Audit Sampling 2073
.26 The auditor should project the misstatement results of the sample to
the items from which the sample was selected.
8,9
There are several acceptable
ways to project misstatements from a sample. For example, an auditor may
have selected a sample of every twentieth item (50 items) from a population
containing one thousand items. If he discovered overstatements of $3,000 in
that sample, the auditor could project a $60,000 overstatement by dividing the
amount of misstatement in the sample by the fraction of total items from the
population included in the sample. The auditor should add that projection to
the misstatements discovered in any items examined 100 percent. This total
projected misstatement should be compared with the tolerable misstatement
for the account balance or class of transactions, and appropriate consideration
should be given to sampling risk. If the total projected misstatement is less
than tolerable misstatement for the account balance or class of transactions,
the auditor should consider the risk that such a result might be obtained even
though the true monetary misstatement for the population exceeds tolerable
misstatement. For example, if the tolerable misstatement in an account bal-
ance of $1 million is $50,000 and the total projected misstatement based on
an appropriate sample (see paragraph .23) is $10,000, he may be reasonably
assured that there is an acceptably low sampling risk that the true monetary
misstatement for the population exceeds tolerable misstatement. On the other
hand, if the total projected misstatement is close to the tolerable misstatement,
the auditor may conclude that there is an unacceptably high risk that the ac-
tual misstatements in the population exceed the tolerable misstatement. An
auditor uses professional judgment in making such evaluations.
.27 In addition to the evaluation of the frequency and amounts of monetary
misstatements, consideration should be given to the qualitative aspects of the
misstatements. These include (a) the nature and cause of misstatements, such
as whether they are differences in principle or in application, are errors or are
caused by fraud, or are due to misunderstanding of instructions or to careless-
ness, and (b) the possible relationship of the misstatements to other phases of
the audit. The discovery of fraud ordinarily requires a broader consideration of
possible implications than does the discovery of an error.
.28 If the sample results suggest that the auditor's planning assumptions
were incorrect, he should take appropriate action. For example, if monetary
misstatements are discovered in a substantive test of details in amounts or fre-
quency that is greater than is consistent with the assessed levels of inherent and
control risk, the auditor should alter his risk assessments. The auditor should
also consider whether to modify the other audit tests that were designed based
upon the inherent and control risk assessments. For example, a large number
of misstatements discovered in confirmation of receivables may indicate the
need to reconsider the control risk assessment related to the assertions that
impacted the design of substantive tests of sales or cash receipts.
.29 The auditor should relate the evaluation of the sample to other relevant
audit evidence when forming a conclusion about the related account balance or
class of transactions.
8
If the auditor has separated the items subject to sampling into relatively homogeneous groups
(see paragraph .22), he separately projects the misstatement results of each group and sums them.
[Footnote renumbered by the issuance of Statement on Auditing Standards No. 111, March 2006.]
9
See section 316, Consideration of Fraud in a Financial Statement Audit, paragraphs .75–.78,
for a further discussion of the auditor's consideration of differences between the accounting records
and the underlying facts and circumstances. This section provides specific guidance on the auditor's
consideration of an audit adjustment that is, or may be, fraud. [Footnote revised, January 2004, to
reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 99.
Footnote renumbered by the issuance of Statement on Auditing Standards No. 111, March 2006.]
AU §350.29