Abstract
Digital Frequency Testing (DFT) using the Newcomb-Benford (N-B) profile is a simple and potentially effective tool that can be used efficiently in the certification audit as well as in the service of forensic investigations to rationalize the use of extended audit procedures at the substantive phase of the audit. In creating the audit evidence needed to rationalize the use of extended procedures for specific accounts under examination the c 2 test applied to the N-B profile is a logical choice as it is fundamentally a variance measure for the difference between the Expectation and the Observation . However, there are anomalously sample size issues in that large sample sizes create a proliferation of False Positive Errors—in the audit context this means using extended procedures when in fact they are not likely to be warranted. In this paper we offer a validated sample size range for using the c 2 as the N-B screening test. We discriminate tested this suggested sample size range using datasets that conform and that do not conform to the Newcomb-Benford profile. These dataset are detailed in the paper. Finally, we have a Decision Support System that aides in the creation of this c 2 screening information. The DSS, programmed an ExcelO VBAO, is available from the corresponding author as a free download with restriction to its use.
Highlights
The market trading world circa 1992 changed fundamentally
All of these datasets are included in Appendix B, (4) address the question of the number of re-samples likely to be required in developing the audit evidence regarding the use of extended procedures, (5) summarize the various results as a 2 digital frequency testing protocol, and (6) give the overview of a Decision Support System (DSS) for generating the 2 testing information
To facilitate the exposition of this section, we will need to make clear the context of our computational logistics: 1) The focus of this paper is on the calibration of the sample size; our goal is to suggest a sample size protocol that will enable the to be used in the audit context without concern for the sample size jeopardy that we have documented above where very large sample sizes likely create excessive use of extended procedures testing and fails the False Positive Error “reasonability” check
Summary
The market trading world circa 1992 changed fundamentally. The Internet went world-wide and at that moment a new trading sector was created: the dot.com enterprises. During the audit, evidence is collected and evaluated to dynamically re-assess this risk or likelihood level In this regard, the auditor uses the collected audit evidence to decide if the evidence suggests anomalies the nature of which requires the auditor to examine this particular account “in greater detail”. The auditor uses the collected audit evidence to decide if the evidence suggests anomalies the nature of which requires the auditor to examine this particular account “in greater detail” This is called the “extended procedures decision”; stated: If it appears to the auditor that the collection of audit evidence uncovers issues that may indicate that there are errors of a material nature in the account under investigation, the auditor, in considering all the current information, decides Yes: All things considered, we, the public accountants, will extend the testing in this particular case. The use of extended procedures needs to be justified to the manager, partner and to the client as extended procedures will increase cost of the audit
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