This document contains key formulas used in conducting a financial audit. It includes formulas for determining materiality, expected error, audit risk, sample sizes for tests of controls and details, and formulas for evaluating results including maximum projected deviation rate, error amounts, tainting, most likely error, precision, and upper error limit. The remarks column provides guidance on determining values and factors to use in the formulas.
This document contains key formulas used in conducting a financial audit. It includes formulas for determining materiality, expected error, audit risk, sample sizes for tests of controls and details, and formulas for evaluating results including maximum projected deviation rate, error amounts, tainting, most likely error, precision, and upper error limit. The remarks column provides guidance on determining values and factors to use in the formulas.
This document contains key formulas used in conducting a financial audit. It includes formulas for determining materiality, expected error, audit risk, sample sizes for tests of controls and details, and formulas for evaluating results including maximum projected deviation rate, error amounts, tainting, most likely error, precision, and upper error limit. The remarks column provides guidance on determining values and factors to use in the formulas.
This document contains key formulas used in conducting a financial audit. It includes formulas for determining materiality, expected error, audit risk, sample sizes for tests of controls and details, and formulas for evaluating results including maximum projected deviation rate, error amounts, tainting, most likely error, precision, and upper error limit. The remarks column provides guidance on determining values and factors to use in the formulas.
Formula Remarks Planning phase Materiality = Base Amount x Percentage Percentage is determined by Auditor as per guidelines available in FAM. Expected Aggregate Error = Materiality x 20% 20% taken as conservative approach as per Working Paper Kit. Planned Precision = Materiality – Expected Aggregate Error AR = IR x CR x OSPR x STDR AR = Audit Risk STDR = AR / (IR X CR X OSPR) IR = Inherent Risk CR = Control Risk OSPR = Other Substantive Procedure Risk STDR = Substantive Tests of Details Risk Sample Size for TOC = Confidence Factor / Upper Error Limit • Confidence factor is to be taken from Table based on Confidence Level and Number of deviations to be permitted. • Upper Error Limit also known as maximum tolerable deviation rate. You can calculate it by (Materiality x Multiplier/Population Value). Sample Size for Tests of Details = Population Value / Average • Basic Precision Factor and PGW Sampling Interval Factors are taken from table based on Average Sampling Interval = Basic precision / Basic Precision Confidence Level for test (%). Factor • Confidence Level for test (%) is Basic Precision = Planned Precision – PGW worked out as (1 – STDR) PGW = Expected Aggregate Error x PGW Factor Evaluation phase For Test of Controls: • Confidence Factor is taken from table Maximum Projected Deviation Rate = Confidence Factor / based on Confidence Level Used and Sample Size number of deviations found in the sample For Substantive Tests of Details (Projectable Errors): • PGW Factor is taken from table based Error (Overstatement) = Book Value – Audit Value on Confidence Level and Ranking of Error (Understatement) = Audit Value – Book Value Error. Tainting = Error / Book Value x 100 • Rank Tainting values, highest = 1, Adjusted Tainting = Tainting * PGW Factor next highest = 2, and so on. Most Likely Error = Sum of Tainting * Sampling Interval or Sum of Tainting / Sample Size * Population Value Basic Precision = Sampling Interval * Basic Precision Factor Precision Gap Widening = Sampling Interval * Adjusted Total Tainting Total Precision = Basic Precision + Precision Gap Widening Upper Error Limit = MLE + Total Precision
