A CONSTRAINED COST-MINIMIZATION MODEL FOR AUDIT SAMPLE PLANNING

Audit sampling is difficult because generally accepted auditing standards (GAAS) specify a large number of input variables to quantify auditors' judgments and estimates. The complexity can be overwhelming for students, educators, and practitioners, GAAS does not offer a comprehensive model for integrating these variables to produce effective, efficient audit sampling plans; that is, GAAS offers no methodology for determining planned sample sizes for tests of control and substantive tests of account balance details linked together in a logical relationship. This paper presents a decision-aid model that integrates numerous facts, estimates, and judgments related to the audit of a particular account for the purpose of planning minimum-cost sampling applications, subject to the constraint of a uniform audit risk that preserves acceptable audit quality. The model treats control risk in terms of an auditor's choice of a planned assessed control risk level, not in terms of an auditee state that must be discovered, The decision-aid model uses a computer program designed to accept auditors' inputs required by GAAS and produces calculations of sampling costs that help auditors determine efficient sample sizes. The motivation for developing the decision-aid model arose from several attempts to simplify and rationalize the audit sampling standards piecemeal, hence the motivation to create an integrated model. The model presented herein purports to accomplish a thorough integration of sampling standards (GAAS) and selected elements of research related to sample planning, Thus, the contribution is a decision aid that puts practice-oriented theory to work. The model also offers a contribution to researchers in the form of a device (the computerized model) for further experimentation with the interaction of sample planning variables.