Probe | How is the sample size calculated in in the substantive testing worksheet (90.20)?

Published: 19/08/2016

How is the sample size calculated in in the substantive testing worksheet (90.20)?

Answer:

When audit procedures are performed in response to the risk of material misstatement, sampling is one of the procedures that need to be performed. However, sampling is the last procedure that is performed. The order of the audit procedures are:

Significant risks responses.
Test of controls.
Required procedures.
Extended test of details.
Extended analytical procedures.
Sampling.

Because of the order of the audit procedures to be performed, and the assurance that is obtained from those procedures, the risk identified at planning stage is reduced. This then gives the risk factor remaining before you have reached your desired audit risk.

Therefore, when sampling, the sample size, in Probe, is calculated as follows = (remaining balance X risk factor)/ specific materiality. (Specific materiality is by default your performance materiality; unless otherwise changed in 11.60).

This would then decrease the sample size. Remember, before you do sampling, you must have tested material, significant and unusual items. After you have obtained assurance from those procedures, your sample size would be reduced. If the population has no material items and no significant risks have been identified and you also cannot rely on controls, you would first do the required procedures. Thereafter extended tests of details (i.e. significant and unusual items), followed by extended analytical procedures - then only sampling.

Sometimes, if you have obtained the necessary assurance and subsequently reduced the risk of material misstatement, then (90.20, copied into the relevant section) states that no further testing is required. You can always override that; by clicking in the box that indicates you would like to proceed anyway.

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