Chapter 19

Audit Sampling for

Substantive Tests
 Substantive Procedures
• concerned with amounts and are of two
types:
Analytical procedures
Test of details of transactions and balances
 Testing the Hypothesis
• Statistical sampling techniques that auditors use in
performing substantive tests require testing the
hypothesis.
Risk in Substantive Tests
Risk in Substantive Tests
 Variables sampling plan
techniques are:
• Probability-proportional-to-size sampling
technique; and
• Classical variables sampling technique.
Probability-proportional-to-size
sampling technique
 Advantages of PPS Sampling
1. It increases the likelihood of including
high peso-value items in the sample.
2. PPS allows auditors to compute the
sample size and evaluate the results by
hand or by means of tables.
3. PPS sampling is easy to use.
4. PPS sampling enables the auditor to stat
conclusion in a peso amount.
 Disadvantages of PPS
Sampling
1. The assumption of PPS sampling that the
audited value of a sampling unit is neither less
than zero nor greater than the book value may
not be consistent with the auditor’s objective.
2. Negative balance or zero balances cannot be
audited using PPS sampling.
3. When misstatements are found using PPS
sampling, the upper misstatement limit may be
too high to be useful.
 Classical Variable Sampling

Classical variables sampling models use normal distribution theory to evaluate

selected the characteristics of a population on the basis of a sample of items
constituting the population.
Classical variables sampling considers each record as a sampling unit. Therefore
each record has an equal chance of being selected for the sample.
 Three common types of CVS
• mean-per-unit estimation,
• ratio estimation, and
• difference estimation.
 mean-per-unit estimation
• uses the statistical concept of mean or average discussed earlier in
the Measures of Center section. Using the average value (mean) of
items in your sample, you can estimate the population value.

If you had a data set of 1,000 records and determined that your sample
size should be 20 out of the population of 1,000, you would total the 20
individual values and divide by the sample size to obtain the mean.
Assume that the total amount for the 20 records is P5,000, so the mean
is P250.
Mean = (P5,000/20) = P250.
With 1,000 records in your population, then the mean estimate is
P250,000 computed as follows:
Mean estimate = (P250 x 1,000) = P250,000
Mean estimates can be used in conjunction with confidence level,
sample risk, and error rate to project to the entire population.
 Ratio Estimation
• uses the method of applying the sample ratio to
the entire population.

Assuming that the 20 audited samples result in total errors of

P500 out of the total sample amount of P5,000, your
misstatement ratio is 10 percent computed as follows.
Misstatement ratio = (P500/P5,000) = 10%
If the total for the data set is P225,000, then the projected
misstatement would be P22,500 computed as follows:
Estimated misstatement = (P225,000 x 10%) = P22,500.
 Difference Estimation
• uses a ratio but also incorporates the records in
the population or data set.

Suppose your data set has 1,000 records and your sample is
20 of those records. Your audit procedures determine P500
worth of errors. The estimated misstatement would be P25,000
computed as follows:
Estimated misstatement = (P500/20) x 1,000 = P25,000