May-2015

whether the new transaction data set fit into the normal
distribution.
If the new data also fit into the normal distribution, he
need not proceed further and conclude his results. On
the other hand if the transaction data did not fit into
normal distribution, he has to make detailed audit on
the samples selected. Cost auditor has to arrange the data
transaction data set the after incorporating the admissible
audited value.
After this, the cost auditor has to identify the interval
in the sample, where the variation of χ2 is more. After
identification of the interval in the sample, he can use the
same class of interval in the transaction data set for selecting
additional samples. The cost auditor may use any
type of sampling method for selection of the additional
sample including simple random method, monetary unit
sampling method etc. If the sample is already selected,
it should be avoided instead new transactions could be
selected.
After selection of the additional samples, he has to take
a in-depth detailed audit on the transactions selected and
the cost auditor has to fix admissible value of the transactions
after auditing.
The new transaction data set will be formed after incorporating
the audited value. The cost auditor may apply
either analytical procedures such as predictive analysis,
regression analysis, business analysis etc or use system
based approach or direct substantive testing approach or
combination of all the techniques.
After completion of this, he can incorporate the items
for which detailed substantial testing were made in the
transaction set and form a new transaction data set after
incorporating the audited value and apply χ2 test again
for conforming the normality. If the transaction data set
satisfies χ2 test, cost auditor may conclude his results.
If the new transaction data set did not satisfy the χ2
test, the cost auditor expected to continue his exercise
till transaction set formed satisfies χ2 test or auditing of
all transactions. By this exercise he could more accurate
book value as sample increases. This procedure enables
him to simplify the ways to identify the transactions
which are likely to be misstated.
Phase II- Estimation of the monetary
value of all transactions
In phase II, the total monetary value of the transactions
which are likely to have audit observations in a particular
accounting balance is evaluated. After satisfaction of
the cost auditor as explained in the Phase I, the mean
of the audit sample for each interval are calculated. On
multiplying the mean of the sample by the number of
transactions of in each interval of the entire account balance
it is possible to derive the monetary value of the
misstatements in the particular account balance which is
in audit focus.
Though, there are many estimators, such as Mean-perunit
estimator, Ratio estimator, Regression estimator,
PPS estimator, Felix and Grimlund estimator, Cox and
Snell estimator are available to estimate the book balance
in the population, the mean estimator is adopted in the
audit model for simplicity.
Phase III: Efficiency of the Audit model
In the third phase, the efficiency of the proposed model
is analyzed and proved that it is mathematically efficient.
The following step ladder could be used for audit process
stated above.
Step Ladder
PHASE I – IDENTIFICATIONS OF MISSTATEMENTS
Step I-Vertical and horizontal consistency
of account balance
In the first step, cost auditor has to ascertain the total
book value of the transactions as mentioned in the account
balance or in the particular class of transactions. He
has to confirm the consistency of the account balance
which he has to ensure the vertical and horizontal consistency
with other financial statements.
Step 2- Selection of sample transactions
The second step is the selection of sample transactions
from the account balance he had selected. The cost auditor
has to identify the high value items, key items and he
has to remove such items and the remaining items will
form the transaction data set. The high value transactions
and key transactions are to be necessarily audited by the
cost auditor. The following procedure could be adopted
in respect of the remaining items.
The cost auditor can adopt any type of statistical plan,
which is in existence. The proposed model did not make
any changes in the existing practice of the initial selection
of the sample. The cost auditor could adopt attribute or
variable or probability proportional to size sampling for
the initial selection of the transactions.
Step 3 – Application of substantial testing
on the selected transactions
The next step involves substantial testing on the trans-
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MAY 2015 the MANAGEMENT ACCOUNTANT 57