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Sampling

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Variables Sampling 689 I have edited a portion of Module G from your textbook so that it more closely follows my lecture. I need to acknowledge that this is not my original work and much of it is taken word for word from the 2nd edition of Auditing & Assurance Services by Louwers, Ramsay, Sinason and Strawser.
Tad Miller
Classical Variables Sampling
LEARNING OBJECTIVE Understand the basic process underlying classical variables sampling in an audit examination.
When performing substantive procedures, one approach is classical variables sampling. Classical variables sampling methods use normal distribution theory and the Central Limit Theorem to provide a range estimate of the account balance. The auditor uses the sample estimates to determine whether the account balance is fairly stated. The Central Limit Theorem indicates larger sample sizes provide a sampling distribution that more closely reflects a normal distribution. Therefore, larger sample sizes will yield a lower level of sampling risk. In this section, we briefly illustrate mean-per-unit classical variables sampling. We illustrate the manual calculations necessary to determine sample size and evaluate sample results. However, if clients maintain records in electronic format, auditors typically use computer software to perform these tasks.
Classical Variables Sampling: Planning
In the planning stages of classical variables sampling, the auditor determines the objective of sampling, defines the attribute of interest, and defines the population. We will utilize the basic information from Rice, Inc.'s accounts receivable introduced in the previous section. Recall that Rice's accounts receivable are comprised of 1,505 individual customer accounts which are recorded at $416,000. Also recall that the auditor is interested in evaluating the existence or occurrence assertion and the valuation and...

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