I have rather theoretical question:
Would a sample, containing 52% of debtors (per count) and 99% of overall debtors balance be reasonable for an entity with low risk assessment?
Replies (7)
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Is this a trick question?!
I'd say that if you are covering off 99% of the debtor balances then you are probably more than ok as far as sample size is concerned. Obviously the results would determine if you are happy with the balance.
Sample size calculation
What does you sample size calculation say based on the materiality and tolerable error? If you consider the calculation to be too high or too low then based on the risk and your profressional judgement adjust. I would think 99% coverage of balance is too high. Sample less, do circ and if the results highlight there is a problem then extend the sample. Depending on what audit programme you are using there is usually a max sample size.
Practicalities
Hello
I would suggest that you verify whatever you practically can using debtors circs, then use alternative procedures for the remainder of the balance e.g. review post date receipts, check from invoices through to final balance, analytical review.
'Practically' means if you are having to send out hundreds of letters, to which most debtors will not reply, then you either concentrate on only a few large debtors, or leave drs circ as a test and use alternative procedures.
Hope that helps.
SA
Debtor's circs
I cannot recall a single debtor's circ done in many years of auditing that produced anywhere near a satisfactory result. I expect most people receiving such a request think it is either a scam or will violate their data protection procedures or even more simply, cannot be bothered.
if I was the client......
I would think that was excessive and (assuming you over-audit to the same extent in the other areas) that your audit fee was probably too high.
But then I am not the client and he probably doesn't understand that point.
However you probably do; and you could almost cetainly afford to significantly reduce the amount of work and let the client have a lower fee - but with a better profit for you!