 In this presentation, we will take a look at Attribute Sampling Applied to Test of Controls Focusing in On Performance. You'll recall that, first a word from our sponsor. Well, actually these are just items that we picked from the YouTube Shopping Affiliate Program, but that's actually good for you. Because these aren't things that we're just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased and used ourselves. Acer 27 inch monitor. I've been using an Acer monitor as my primary monitor for a few years now. This is the first Acer monitor that I have used after having used a series of different brands of monitors in the past. The Acer monitor has been performing well and I'm trusting the Acer brand more and more as I use the monitor. I have a 27 inch monitor which I think is ideal for what I do, which is of course the screen recording and the editing. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com where we have many different courses. You can purchase one at a time or have a subscription model giving you access to all the courses, courses which are well organized, have other resources like Excel files and PDF files to download and no commercials. When conducting a standard sample for test of controls, auditing standards require the auditor to properly plan, perform and evaluate the sampling application and to adequately document each phase of the sampling application. Those phases including plan, perform, evaluate, document. We took a look at the plan last time. We're taking a look at perform this time. The planning is now done. We're going to get down to the actual work, the actual doing, the actual performing. Perform, select the sample items. We're going to go through, select the sample items using either the random number selection or a systematic selection. We'll talk more about these shortly. Perform the auditing procedures and these are going to be some terms that we will use as we consider those auditing procedures with relation to the selected sample items. These include unused or inapplicable documents, voided documents, inability to examine a sample item, stopping the test before completion. So if we apply our example to this then we're going to say that our example, we're looking at some type of verification in the controls of the purchasing. We want to see if there's a verification. We're going to take this purchasing document. We're going to check it to see if it has some initials on it, which would indicate that it went through the verification process. So if we were then to think about the selecting the sample items, we're either going to use a random number selection or a systematic selection in order to take the entire population, which is going to be these basic purchase documents and then take some portion of them so that we can check or verify them. We're going to be in essence checking or verify a very simple check to see if it has the initials on it that we would expect that would indicate that the internal control that we're checking for has indeed taken place. We will be keeping in mind these factors as we go through that process and we'll discuss them in more depth shortly. So now we're thinking about the select sample items. We can use either the random number selection or the systematic selection. We'll start with the random number selection. This would be the most common type of selection if we have a sample or a population. How can we choose which ones we're going to test? Well we can do some type of random testing and we're going to have every item in the population has the same probability of being selected as every other item in the population. So that doesn't just mean that we take all the items and kind of randomly ourselves look into it because if we just try to pick something randomly, we don't usually have a random selection. Although that might be a method that someone could use but it wouldn't be completely random. We'd have to use some kind of random number generator type of selection and that would make it so that every item in the population has the same probability of selection as every other item. So that's going to be our classical type of method when we think about any kind of statistical sampling. First thing that should come to mind is the default random kind of selection. But that's not the only method we could use. We could have a systematic selection. That's where the auditor determines the sampling interval by dividing the population by the sample size. The starting number is randomly selected in the first interval. Then numbers are selected in a consistent interval. So we might then basically pick the first interval and then select a random interval of numbers basically if so you can imagine we have a list of numbers and we basically start at some point and then we randomly select or not randomly we have a consistent interval of when the next number will be as we go through that set of numbers. And that way there's some pros and cons to this you can consider. The random sample is completely random which has some pros and cons that there's no bias in the random sample in terms of which ones were picked. However you might get unusual groupings because random samples might just randomly group a lot of stuff in one area as opposed to another. And so the timing of when these things happen might not be as consistent whereas if you want something to be timed throughout the year consistently then you might try to take some type of systematic selection where you know it's going to be somewhat random and that the intervals will be taken throughout the system but you'll have some more uniformity in that you'll have items that will be there probably throughout the entire year given the format that you have selected within. Now we're going to take a look at the performance and auditing procedures and consider some of these terms. So we're going to perform the auditing procedure. In our case we're going to be checking that these documents have the verification that we're considering in the internal control unused or unapplicable documents. So what if we have in other words in our random sample because we randomly chose these things we select some document that is either unused or it's not applicable. We look at it and then we say this is just a blank item it's not used it's not applicable for whatever reason well what do we do then the auditor should replace them with a new sample item unless they are found to be unusual in some way. So in other words if we if we took something that's unused and we say well this obviously isn't isn't something there's nothing wrong with it per se it's just happens to be something that's going to be an unused number should what should we do with it should we count it in our sample. Now we're just going to basically remove it and we're going to replace it with another one unless there's some problem with it in which case it might be that that is a deviation from from the control. So in our case if we found just a blank purchase order that has nothing on it well it wouldn't have a signature that would have verification for it because it's blank and therefore it's it's not really applicable so we would probably want to replace it and put another one in there. However if we came to the conclusion that it should that the thing should that there should be something there to it because the invoice numbers or the purchasing order number should be an alignment then we could consider possibly a deviation in that case. Now we'll consider within the performance and auditing procedures inability to examine a sample item so what if we go through our process we're looking for the purchasing document in our case and we we have an inability to to get it we can't get it for whatever reason we can't find it well if we can't find it if we can't get it and we should be able to get it and find it the sample item is a deviation for purposes of evaluating the sample results typically in other words if we're checking to see if the initial is on it to see if the control is there if we go in and we can't find the document that we're looking for that should have the initial on it well then we're going to consider that a deviation next we'll consider stopping the test before completion so as there's some case that we might be able to stop the test before completion why could save some time if we're able to do that if a large number of defeat deviations are detected early in the test of controls auditors should consider stopping the test as soon as it is shown that the results of the test will not support the planned assessed level of control risk so if we go through this and we say we're going to check that our initials are on there and and check for this control to be in compliance with the system of controls and we just check a few of them the first few that we check we have a high rate of non initials on there and therefore we have a high rate of items that are deviations as soon as we hit the point where we say hey we have enough deviations at this point in time that this this we're not going to meet the standard that we were looking for we could stop right there we don't need to test more of the population to determine that we're not going to meet the point that we're trying to meet at so there could be a point then that we could save some time and say hey we found that the number of deviations that is already surpassed those that that we were considering acceptable and therefore we're going to stop in that case it's not there a control DV