ABREMA: audit sampling and testing: example: quantitative analysis: substantive testing

Audit testing procedures

Example: Quantitative analysis: substantive testing

The purpose of the quantitative analysis is to estimate the actual level of exceptions in each stratum.

Key items

No exceptions were detected. Estimated actual level of exceptions in all key items is nil.

Stratum 1

Two atypical exceptions totalling $76,000 (overstatement) were detected. Estimated actual level of exceptions in this stratum is $76,000 (overstatement).

Stratum 2

One systematic exception was detected. Assume that:

upon investigation of the systematic exception, it was found that a total of 12 unit costs were valued at selling price less 48% rather than the correct valuation of selling price less 50%, resulting in an overstatement of $26,500.
no other exceptions were detected.

Estimated actual level of exceptions in stratum 2 is therefore $26,500 (overstatement).

Stratum 3

Two random exceptions netting to an overtstatement of $20 were detected. Assume:

the actual value of the 10 items selected was $20,200. Using the first method of projection, the value of the random exceptions is estimated to be $e/n X N (i.e. $20/10 x 2,210) or $4,420. [Using the second method, which may not be appropriate, the value of the random exceptions is estimated to be $e/$n x $N (i.e. $20/$20,200 x $3,350,000) or $3,316].
no other exceptions were detected.

The estimated actual level of exceptions in stratum 3 is thus $4,420 (overstatement).

This may be summarized as follows:

Stratum	Exception category	Over (under) statement ($)
Key items		Nil
Stratum 1	Atypical exceptions	76,000
Stratum 2	Systematic exception	26,500
Stratum 3	Random exceptions	4,420
	Total exceptions	106,920

Thus, the estimated actual level of exceptions in the total population of inventory is $106,920. The auditor compares this with the tolerable level of misstatements.

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