Field Data on Accounting Error Rates and Audit Sampling

SUMMARY: Changes in the accounting and auditing environments since the passage of Sarbanes-Oxley (SOX) and the creation of the Public Accounting Oversight Board (PCAOB) have likely impacted accounting population error rates and audit sampling procedures. We investigate accounting population error rates and auditor sampling performance for a unique proprietary post-SOX dataset of 160 audit sampling applications for a large auditing firm. Compared to previous research, we find that in the post-SOX period, accounting data error rates are significantly lower in magnitude and frequency, sample sizes are significantly larger, and auditor performance has improved in evaluating sample errors. The low error rates suggest criticisms in prior research regarding audit sampling techniques may not be a serious concern for most audit sampling applications. Furthermore, we provide evidence that auditors' application of audit sampling is more consistent with the requirements in professional standards than previously reported.

[1]  Steven M. Glover,et al.  Audit Sampling Research: A Synthesis and Implications for Future Research , 2013 .

[2]  Joseph V. Carcello,et al.  The effect of PCAOB inspections on Big 4 audit quality , 2011 .

[3]  Mark L. DeFond,et al.  The Effect of SOX on Small Auditor Exits and Audit Quality , 2011 .

[4]  Jere R. Francis.  A Framework for Understanding and Researching Audit Quality , 2011 .

[5]  Jeffrey J. Tsay,et al.  Modified Sieve Sampling: A Method for Single- and Multi-Stage Probability- Proportional-to-Size Sampling , 2010 .

[6]  Randal J. Elder,et al.  A Longitudinal Investigation of Auditor Error Projection Decisions , 2005 .

[7]  M. Lesperance,et al.  Optimal Bounds Used in Dollar-Unit Sampling: A Comparison of Reliability and Efficiency , 2004 .

[8]  Robert D. Allen,et al.  A Longitudinal Field Investigation of Auditor Risk Assessments and Sample Size Decisions , 2003 .

[9]  Terri L. Herron,et al.  The Effectiveness of Increasing Sample Size to Mitigate the Influence of Population Characteristics in Haphazard Sampling , 2001 .

[10]  J. Hunton,et al.  The Use of and Selection Biases Associated with Non Statistical Sampling In Auditing , 2000 .

[11]  Robert D. Allen,et al.  An empirical investigation of the auditor's decision to project errors , 1998 .

[12]  Neal B. Hitzig.  Detecting and Estimating Misstatement in Two-Step Sequential Sampling with Probability Proportional to Size , 1998 .

[13]  Steven M. Glover,et al.  Error Projection and Uncertainty in the Evaluation of Aggregate Error , 1997 .

[14]  J. Horgan.  Stabilising the Sieve Sample Size Using PPS , 1997 .

[15]  K. Rohrbach.  Sample Size Determination Using the Augmented Variance Estimator , 1997 .

[16]  Howard R. Clayton,et al.  A Combined Bound for Errors in Auditing Based on Hoeffding's Inequality and the Bootstrap , 1994 .

[17]  Jane L. Reimers,et al.  The effect of containment information and error frequency on projection of sample errors , 1994 .

[18]  Denny Meyer,et al.  Estimation of Audit Bounds for Net Error , 1992 .

[19]  E. M. Matsumura,et al.  Comparative Performance of Two Multinomial-Based Methods for Obtaining Lower Bounds on the Total Overstatement Error in Accounting Populations , 1991 .

[20]  James T. Godfrey,et al.  Comparison of Sieve Sampling with Random and Cell Sampling of Monetary Units , 1989 .

[21]  James T. Godfrey,et al.  Efficiency of Sieve Sampling in Auditing , 1989 .

[22]  Wally J. Smieliauskas,et al.  Some empirical evidence on the stability of accounting error characteristics over time , 1987 .

[23]  Wally J. Smieliauskas,et al.  A comparison of the stratified difference estimator with some monetary‐unit sampling estimators* , 1987 .

[24]  Wally J. Smieliauskas.  Control of sampling risks in auditing , 1986 .

[25]  Wally J. Smieliauskas,et al.  A Simulation Analysis Of The Power Characteristics Of Some Popular Estimators Under Different Risk And Materiality Levels , 1986 .

[26]  Donald M. Roberts.  Stratified Sampling Using a Stochastic Model , 1986 .

[27]  W. Knechel.  A Stochastic Model of Error Generation in Accounting Systems , 1985 .

[28]  John Neter,et al.  Robust Bayesian Bounds for Monetary‐Unit Sampling in Auditing , 1985 .

[29]  Wally J. Smieliauskas,et al.  Sensitivity Analysis of the Realized Risks of Auditing with Uncertainty Concerning Internal Control Evaluations , 1985 .

[30]  Jeffrey Joseph Phillips,et al.  Bayesian bounds for monetary-unit sampling using actual accounting populations , 1985 .

[31]  Wally J. Smieliauskas,et al.  A Simulation Study Of The Performance Of Parametric Dollar Unit Sampling Statistical Procedures , 1984 .

[32]  John Neter,et al.  Bayesian Bounds for Monetary Unit Sampling in Accounting and Auditing , 1984 .

[33]  P. Frost,et al.  Jackknifed Ratio Estimation in Statistical Auditing , 1982 .

[34]  John Neter,et al.  Power Characteristics of Test Statistics in the Auditing Environment: An Empirical Study , 1982 .

[35]  P. J. Beck.  A critical analysis of the regression estimator in audit sampling , 1980 .

[36]  David R. Cox,et al.  On sampling and the estimation of rare errors , 1979 .

[37]  R. L. Baker,et al.  Evaluation Of The Stratified Regression Estimator For Auditing Accounting Populations , 1979 .

[38]  Stanley J. Garstka,et al.  Ratio Estimation In Accounting Populations With Probabilities Of Sample Selection Proportional To Size Of Book Values , 1979 .

[39]  Abba M. Krieger,et al.  An Empirical Study of Error Characteristics in Audit , 1979 .

[40]  John Neter,et al.  On the Behavior of Statistical Estimators When Sampling Accounting Populations , 1977 .

[41]  S. Fienberg,et al.  Estimating the Total Overstatement Error in Accounting Populations , 1977 .

[42]  S. Garstka.  Models for Computing Upper Error Limits in Dollar-Unit Sampling , 1977 .

[43]  William R. Kinney.  A Decision-Theory Approach to the Sampling Problem in Auditing , 1975 .

[44]  A. Teitlebaum,et al.  The Real Risks in Audit Sampling , 1975 .

[45]  William R. Kinney.  Decision-Theory Aspects Of Internal Control-System Design-Compliance And Substantive Tests , 1975 .

[46]  R. Kaplan.  Statistical Sampling in Auditing with Auxiliary Information Estimators , 1973 .