Determine whether it would be necessary to test the remaining population using audit sampling; if so, compute your sample size for testing the remaining population through audit sampling and justify the inputs you used in the sample size formula.

Question

Based on the same background information as was used for question 1, but assuming that in selecting
which customer balances to detail test you want to expand directed testing by selecting additional items
based on risk and size, reevaluate the mix of directed testing and audit sampling. If you believe it would
be efficient and effective to increase your directed testing, prepare a schedule that includes the following:

Answer 1

In practice there is often a misperception that there has to be “coverage” of a certain percentage of the
account balance that is tested either through targeted testing or through random sampling before the
auditor can sign off or that the remaining “untested” balance has to be less than tolerable misstatement.
However, the remaining items not included in direct testing would not be considered “untested” if tests
of controls and substantive analytical procedures provide evidence regarding the overall A/R balance.
In this case, we already have some assurance from tests of controls and substantive analytics,
so considering the risk and coverage directed testing approach, audit sampling may not be necessary.
Extensive directed testing along with tests of controls and substantive analytics often provides sufficient
evidence to make an assessment regarding the fairness of the account balance.
If sampling is performed in this case, a low level of confidence is likely all that is needed in
addition to the direct testing, tests of controls, and substantive analytics to make an assessment of the
fairness of the A/R balance.