Definition
Misstatements found in a sample indicate misstatement in the rest of the population. AU-C 530 requires the auditor to project them, using a method suited to the design: ratio or difference projection for classical variables sampling, tainting for monetary unit sampling, or the deviation rate for attribute tests. Anomalies, which are demonstrably not representative, are excluded from projection.
Why it matters in an audit or review
Projected misstatement is compared with tolerable misstatement to decide whether the population is acceptable. It is also carried to the schedule of uncorrected misstatements, together with misstatements found in items tested separately, because the auditor evaluates their total effect against materiality under AU-C 450.
Example
A receivables population is $2,000,000 and the sample covers $500,000 (illustrative). The sample contains a $5,000 overstatement. By ratio projection, 5,000 divided by 500,000 is 1 percent, and applying it to $2,000,000 gives $20,000. The auditor adds $20,000 to the schedule and compares it with tolerable misstatement of $90,000.
Common mistakes
- Reporting the sample error as the total and skipping projection.
- Labelling a recurring error an anomaly to avoid projecting it.
FAQ
Does projection apply to items tested at 100 percent?
No. Items tested in full carry their actual misstatement; only sampled items are projected.
Sources
- AICPA, AU-C Section 530, Audit Sampling
- AICPA, AU-C Section 450, Evaluation of Misstatements Identified During the Audit
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error