Shreveport Chapter: Controlling Alpha Risk in Tests of Controls (ZZ18SH021918)
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When: Monday, February 19, 2018
From 11:30 am until 1:00 pm
Where: Shreveport Petroleum Club
416 Travis Street, 15th floor
Shreveport, Louisiana 
United States
Presenter: Bruce Wampler
Contact: Angela Gray
(800) 851-5111

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Controlling Alpha Risk in Tests of Controls

Auditors frequently use attribute sampling to test the effectiveness of clients’ internal controls. Whenever sampling is used, there is a risk (called sampling risk) that the sample may not be representative of the population, which may result in an incorrect inference about the population. As discussed below, there are actually two types of sampling risk.

Beta risk (the risk of overreliance on the control) is the chance that the auditor will conclude that the control is effective when it actually is ineffective. The consequence of relying on an ineffective control is an unjustified reduction in substantive tests, which results in greater audit risk than desired and compromises the effectiveness of the audit. Alpha risk (the risk of underreliance on the control) is the chance that the auditor will conclude that the control is ineffective when it actually is effective. The consequence of not relying on an effective control is the performance of unnecessary substantive tests, resulting in an inefficient audit. However, the audit will still be effective, since achieved audit risk will be less than acceptable audit risk. Because the consequences of overrreliance on a control are much more serious than underreliance, auditors are understandably more concerned with controlling beta risk than alpha risk.

Ideally, the auditor would consider both alpha and beta risk when determining required sample sizes, but doing so is computationally difficult. Consequently, attribute sampling plans have traditionally ignored alpha risk, a trait that persists today even though technological advances now permit the design of sampling plans that control for both types of sampling risk. In this presentation, the speaker will demonstrate a spreadsheet that allows the auditor to specify both alpha and beta risk when designing statistical attribute sampling plans to make your audits more efficient without impacting effectiveness.

CPE: 1
Category: Accounting and Auditing
Level: Intermediate
Fee: Members/Non LCPA guest: $20
Non-Member: $25
RSVP: February 19th
Agenda: 11:30 pm Registration and lunch
12:00 – 1 pm Session
Speaker Bio

Bruce Wampler

Bruce Wampler is a Professor of Accounting at LSU Shreveport. He received a bachelor’s and doctorate degree in Accounting from Louisiana Tech University, and also has an M.B.A. degree from The University of Texas at Austin. Bruce is a licensed CPA with previous audit experience, and his primary teaching and research interests are in financial accounting and auditing.