Auditing
Assertions & Sampling
Verifying Existence and Valuation assertions using statistical or random sampling.
Questions present audit scenarios for A/R, inventory, payroll, and fixed assets. Sampling method questions describe a selection process and ask for its name. Assertion questions pair a procedure with the assertion it tests. Directionality questions describe a tracing sequence and ask whether it tests Existence or Completeness.
What the exam tests
Sampling Method Classification
Distinguish between Statistical sampling (Random, which allows statistical inference) and non-statistical methods: Judgmental, Haphazard, and Block sampling.
Assertion-to-Procedure Identification
Identify which assertion a procedure best supports: A/R confirmations → Existence, A/R turnover ratio → Valuation.
Verification Logic and Directionality
To prove Existence, trace accounting records to supporting evidence (records → source docs). To prove Completeness, trace source documents to accounting records (source docs → records).
Ratio-Based Assertion Mapping
Link specific financial ratios to assertions: accounts receivable turnover ratio tests Valuation, and gross margin % year-over-year tests Valuation of Inventory and COGS.
Analytical Procedure Measurement
Identify what a comparison measures: gross margin % year-over-year detects potential overstatements or understatements of Inventory and COGS.
Strategic Auditing Logic (Assertion Mapping)
Key rules
- ›Existence: does the item actually exist? Best evidence: confirmations, physical inspection.
- ›Valuation: is the recorded amount correct? Best evidence: recalculation, ratio analysis, market value comparison.
- ›Completeness: is everything recorded? Best evidence: search for unrecorded items by tracing source docs to records.
- ›Rights & Obligations: does the entity own/owe it? Best evidence: contracts, titles, agreements.
Common traps
- !Using an Existence procedure (confirming an item is real) to answer a Valuation question (confirming the dollar amount is correct).
Verification Directionality
Key rules
- ›Existence testing direction: Accounting records → Supporting evidence (does this recorded item have proof behind it?).
- ›Completeness testing direction: Supporting evidence → Accounting records (is this real transaction actually recorded?).
- ›Reversing direction tests the wrong assertion.
Common traps
- !Tracing source documents to records when the question asks about Existence. That tests Completeness.
Statistical Recognition (Sampling Methods)
Key rules
- ›Random (Statistical) sampling: every item in the population has an equal chance of selection; supports statistical inference about the full population.
- ›Judgmental: auditor selects based on professional judgment, so no statistical inference is possible.
- ›Haphazard: selected without a structured method, so it is not truly random.
- ›Block: selects a contiguous group (e.g., all invoices in March), which carries a high risk of an unrepresentative sample.
Common traps
- !Assuming Haphazard sampling is equivalent to Random sampling. It is not statistically defensible.
Data Verification Proficiency
Key rules
- ›To verify employee existence: trace payroll records to personnel department records.
- ›To verify A/R existence: send confirmations directly to customers.
- ›Independent external evidence is stronger than internal corroboration.
Try one
Which of the following is a statistical sampling method?
Random sampling is the only statistical method listed. In a random sample every item in the population has an equal chance of selection, which lets the auditor draw statistically valid inferences about the whole population. Judgmental, haphazard, and block sampling are non-statistical.
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