Document ID: chunk:federal_register_of_legislation:F2021C01255:body:0:p10
Version: federal_register_of_legislation:F2021C01255
Segment Type: other
Provision Reference: 
Character Range: 26220–29147

if the auditor stratifies a population by dividing it into discrete sub-populations which have an identifying characteristic.  The objective of stratification is to reduce the variability of items within each stratum and therefore allow sample size to be reduced without increasing sampling risk.

2.                   When performing tests of details, the population is often stratified by monetary value.  This allows greater audit effort to be directed to the larger value items, as these items may contain the greatest potential misstatement in terms of overstatement.  Similarly, a population may be stratified according to a particular characteristic that indicates a higher risk of misstatement, for example, when testing the allowance for doubtful accounts in the valuation of accounts receivable, balances may be stratified by age.

3.                   The results of audit procedures applied to a sample of items within a stratum can only be projected to the items that make up that stratum.  To draw a conclusion on the entire population, the auditor will need to consider the risk of material misstatement in relation to whatever other strata make up the entire population.  For example, 20% of the items in a population may make up 90% of the value of an account balance.  The auditor may decide to examine a sample of these items.  The auditor evaluates the results of this sample and reaches a conclusion on the 90% of value separately from the remaining 10% (on which a further sample or other means of gathering audit evidence will be used, or which may be considered immaterial).

4.                   If a class of transactions or account balance has been divided into strata, the misstatement is projected for each stratum separately.  Projected misstatements for each stratum are then combined when considering the possible effect of misstatements on the total class of transactions or account balance.

Value-Weighted Selection

5.                   When performing tests of details it may be efficient to identify the sampling unit as the individual monetary units that make up the population.  Having selected specific monetary units from within the population, for example, the accounts receivable balance, the auditor may then examine the particular items, for example, individual balances, that contain those monetary units.  One benefit of this approach to defining the sampling unit is that audit effort is directed to the larger value items because they have a greater chance of selection, and can result in smaller sample sizes.  This approach may be used in conjunction with the systematic method of sample selection (described in Appendix 4) and is most efficient when selecting items using random selection.

Appendix 2

(Ref: Para. A11)

Examples of Factors Influencing Sample Size for Tests of Controls

The following are factors that the auditor may consider when determining the sample