May-2015

AUDITING
EXPLORING
MISSTATEMENTS
The proposed audit-model is simple, adoptable and
innovative by applying indispensable statistical tools
such as normal distribution to facilitate the cost auditor to
derive his results on substantial testing
CMA Dr. L Kailasam
Dy. Accountant General,
Office of the
Principal Accountant
General (GSSA)
Thiruvananthapuram
THE examination and evaluation of
financial objectionable cost misstatements
among several thousands
of the transactions is a herculean task.
In many circumstances, verification of each
and every transaction is practically impossible,
as it requires lot of resources and time.
Therefore, cost auditor necessarily to adopt
appropriate sampling method, for deriving
his results when one hundred percent of
transactions within particular class of transactions
or accounting balance could not be
verified by him for expressing his opinion.
There are two major concerns for the cost
auditor, who is applying statistical sampling.
One being the cost auditor has to estimate
how many samples to be selected and another
being what are those samples for the detailed
examination.
Heimann & Chesley (1977) 1 developed an
audit sampling model by taking into consideration
of various types of sampling risks. The
model is useful in calculating the total cost
that has to be incurred for auditing samples
as well as to determine the alpha and beta risk
levels. He pointed out that the classical statistical
approach involves the use of the mean
value estimator.
However, the mean-value estimator ignores
some important additional information
that the cost auditor would have used during
audit sampling such as the actual recoded
value of an account balance. Therefore, O´
Regan (2010) 2 suggested that the cost auditor
have to consider confidence level, expected
deviation rate, tolerance rate and population
to determine the sample size.
However, no attempt was made so far to
link the sample interval and the corresponding
population interval for getting adequate
additional samples for deriving useful conclusions
on materiality and hence a preliminary
attempt is made to develop an audit model
to derive scientific results on the substantial
testing with least efforts.
The proposed audit-model is simple, adoptable
and innovative by applying indispensable
statistical tools such as normal distribution
to facilitate the cost auditor to derive his
results on substantial testing. As in the case of
any audit-sampling model, the proposed audit
model also involves planning, performing
and evaluation of audit samples. The professional
judgment in planning, performing and
evaluating sample and corroborating with
1 Heimann,S.R.,& Chesley,G.R.(1977).Audit Sample Sizes for
Aggregated Statement Accounts. Journal of Accounting
Research,15(2),193-206
2 O´Regan,D.(2010).Attribute Sampling Plans. Internal Auditor,
67(1),19-21.
www.icmai.in
MAY 2015 the MANAGEMENT ACCOUNTANT 55