A representative sample is one in which the characteristics in the sample of audit interest are approximately the same as those

of the population. A representative sample is one in which the characteristics in the sample of audit interest are approximately the same as those of the population. Nonsampling risk is the risk that audit tests do not uncover existing exceptions in the sample. Sampling risk is the risk that an auditor reaches an incorrect conclusion because the sample is not representative of the population Probabilistic sample selection is a method of selecting a sample such that each population item has a known probability of being included in the sample. Nonprobabilistic sample selection is a method in which the auditor uses professional judgment rather than probabilistic methods Directed sample selection is the selection of each item based on auditor judgmental criteria. Block sample selection is the selection of several items in sequence Haphazard sample selection is the selection of items without any conscious bias on the part of the auditor. A simple random sample is one in which every possible combination of elements in the population has an equal chance of constituting the sample The occurrence rate, or exception rate, is the ratio of the items containing the specific attribute to the total number

of population items Probability proportional to size (PPS) is a sampling technique for use with surveys or mini-surveys in which the probability of selecting a sampling unit is proportional to the size of its population. It gives a probability (i.e., random, representative) sample. The statistical sampling method most commonly used for tests of controls and substantive tests of transactions is attributes sampling Tests of transactions gather evidence in relation to validity, completeness and accuracy of transactions. Trace source document to accounting records (journals and ledgers) Looking to ensure transaction actually took place; that is was recorded in the correct account for the correct amount Tests of balances review accuracy, validity and completeness of account balances Analytical review review relationships between figures and to highlight unusual trends Substantiative testing is increased by: Larger samples of transaction and balances Further analytical review Gaining a range of evidence audit trail, enquiry, confirmation in relation to each audit objective or assertion Raising materiality ie lowering the dollar value of items to be verified Types of errors Errors of principle misapplication of accouning standards ie recording capital expenditure as a expense Adjusting Journal required to Dr Asset and Cr Expenses and adjustment for depreciation so that assets are not understated and expenses are not overstated Errors of timing cut off tests ie goods invoiced prior to June 30th but not recorded Adjusting Journal required to Dr Accounts receivable and Cr Sales assets are not understated and revenues are not understated Miscalculations- arithmetical or data entry ie recording sales as $3200 instead of $3400 Adjusting Journal required to Dr Accounts receivable $200 and Cr Sales $200 so that assets are not understated and revenues are not

understated If the client refuses to amend the draft figures to adjust for a material error, the auditors may eventually qualify their report Sales Select a number of entries in SJ and vouch to Source doc (sales invoice) Trace a number of sales invoices to the SJ and ledger accounts Verify arithmetic accuracy of sales invoice and SJ Review SJ for large or unusual items Perform year-end cut-of test and prepare adjusting entries Purchases Select a number of entries in the PJ and vouch to source documents Trace a number of supplier invoices to the PJ and ledger accounts Perform recalculations on supplier invoices Review the PJ for large or unusual items Perform year-end cut-of test and prepare adjusting entries Accounts Receivable Verify Accs Rec T/B figure and reconcile to Gen Ledger acc and subsidiary ledgers. Confirm Accs Rec letters are sent to various debtors asking them to confirm the balance as at 30 June. Positive confirmations are used where the debtor is asked to respond if they agree with the balance as well as if there is a difference. Vouch accounts receivable entries in accounting records to source documents Review an aged analysis of debtors and check for debtors to 120 days. Review adequacy of Provision for Doubtful Debts Perform Sales cut-off tests Accounts Payable Verify accuracy of accounts payable trial balance figure and reconcile to creditors balances subsidiary and general ledger Vouch recorded creditors to supporting documentation Confirm creditors Confirmation letters sent out to creditors. Letters are sent to various creditors asking them to state the balance as per their records as at 30 June. Positive confirmations are used. Perform purchases cut-off tests Perform cash payments cut-off tests Inventory Verify accuracy of schedules and perpetual records and agreement with inventory balances Observe client inventory taking be present at the clients stocktake

Vouch recorded purchases to supporting documentation Enquiry of management regarding ownership Cash Receipts and Payments Confirm bank and loan balances with the bank Count cash on hand Prepare independent bank reconciliation Perform cash cut-off tests Review prepayments Non-current assets Verify accuracy of fixed asset register and agree fixed assets register with property, plant and equipment balances Recalculate depreciation and accumulated depreciation Inspect property, plant and equipment additions Vouch property, plant and equipment additions to register Vouch property, plant and equipment disposals/trade-ins to register Examine title or lease documents Payroll Review payroll records and recalculate payroll Recalculate accrued wages Select a sample of transactions from the payroll register and vouch to the journal entries and general ledger Verify payroll calculations Review preparation of payroll tax and deductions Investments Send out Confirmation Letters to confirm balances Verify accuracy of balances, schedules and Investment Register Inspection of documentation broker invoices, remittance advice for dividend income received and/or interest earned Vouch entries in investment accounts Recalculate interest earned Long-Term Liabilities Send out Confirmation Letters to confirm long-term debt Review documentation debt authorisation and contracts and vouch to entries in accounting records. Analytical review Shareholders Funds Inspect share Register Vouch entries to share capital accounts, retained profits and reserves Review Constitution of the company Check the share and equity issues have adhered to Corporations Law

and other relevant legislative or technical requirements. Check that dividends are properly authorised.