Error Rates, Error Projection, and Consideration of Sampling Risk: Audit Sampling Data from the Field

Previous research has examined error characteristics of accounting populations as well as auditors’ evaluation of sample errors. In addition, many studies about audit sampling techniques frequently rely on assumptions concerning the error characteristics of accounting populations. These studies precede the passage of the Sarbanes-Oxley Act, which likely had a significant impact on financial reporting and internal controls, as well as auditor sampling performance. We investigate error rates and auditor performance in evaluating sample errors using a unique proprietary post-SOX data set of 160 audit sampling applications for a large auditing firm. We find that errors are significantly lower in magnitude and frequency in the post-SOX period, and significantly improved auditor performance in evaluating sample errors. The low error rates in our study suggest that the criticisms of typical audit sampling techniques reported previously in the literature may not be a serious concern for most audit sampling applications.

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