May-2015

AUDITING
P
H
A
S
E
I
Start
Selecting sample transaction
from the Accounting Balance
Apply substantial testing on
the samples selected
Identify the transactions
which violated Rules etc and
find out the admissible value
of the traansactions
Form a new transaction data
set after incorporating the
audited value and apply x 2 test
Select samples from
the same intervel in the
transaction data set where
x 2 variate maximum
Identify the intervel where
x 2 variate maximum
A1 = Ur *SE* N √ (1- n 1
/N)
By substituting the value of SE = SD/√ (n1) in the
above equation, the precision will be
A1 = Ur * SD/√ (n 1
)* N √ (1- n 1
/N)
By simplifying the above equation the precision will
become
A1 = Ur * σ1* N 2 √ ((N/ n 1
) -1)
Let the cost auditor takes additional samples n2.. The
total number of samples will be n1+n2. Since the new
admissible audited value is substituted Standard deviation
of the book value will vary from the earlier, which is σ2.
The new precision level A2 for all n1+n2 samples will be
A2 = Ur * σ 2
* N 2 √ ((N/ n 1
+n 2
) -1)
A2 / A1 = (σ 2
/ σ 1
)* ( √ ((N/ n 1
+n 2
) -1)/ √ ((N/ n 1
) -1))
A2 / A1 = (σ 2
/ σ 1
)* ( √N/ (n 1
+ n 2
) – 1)/ ((N/ n 1
) -1))
A2 / A1 = (σ 2
/ σ 1
)*( √ (N - (n 1
+ n 2
) / (N - n 1
))* n 1
/
(n 1
+ n 2
))
Since n1 < n 1
+ n 2
n 1
/ (n 1
+ n 2
) < 1 (4.5)
Whether
transaction data
set satisfiex x 2 test
Yes
No
On the other hand
(n 1
+ n 2
)> n 1
- (n 1
+ n 2
) < - n 1
N - (n 1
+ n 2
) < N - n 1
(N - (n 1
+ n 2
) / (N - n 1
)) < 1 (4.6)
Calculate of the mean,
Standrad Deviation and
Precision (A) of the
samples selected
σ 2
/ σ 1