Setting tolerable misstatements when auditing aggregated accounts

Orie Barron, S. Michael Groomer, Morgan Swink

Research output: Contribution to journalArticle

Abstract

Generally accepted auditing standards require auditors to plan audits of clients' account balances. If accounts are to be sampled, then part of this planning must include setting the tolerable misstatement for each account or class of transactions to be sampled. Although classical sampling approaches provide certain advantages, they have not been widely used because they are viewed as complex and difficult to implement. We present a remedy to these difficulties in an efficient, easily implemented optimal solution method for the problem of setting tolerable misstatements given constraints on tolerable misstatements for individual account balances as well as the overall audit. Further, our method suggests when the materialities of certain accounts or the materiality of the overall audit are irrelevant to the problem. Several example auditing problems demonstrate both our solution approach and the settings in which our approach provides a more effective or more efficient sampling plan than that provided by monetary unit sampling.

Original languageEnglish (US)
Pages (from-to)1005-1030
Number of pages26
JournalDecision Sciences
Volume29
Issue number4
Publication statusPublished - Sep 1 1998

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All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Strategy and Management
  • Information Systems and Management
  • Management of Technology and Innovation

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