Reviews the book "Probability, an Introduction," by Samuel Goldberg.

Reviews the book "Company Investigations of Automatic Data Processing," by Peter B. Laubach.

The purpose of this study was to investigate the applicability of statistical sampling techniques to the confirmation of accounts receivable. The confirmations of accounts receivable by a firm of independent auditors in three companies-two industrial ones and a public utility were investigated. These companies were chosen to provide a variety of situations as to type of business, problems encountered in confirmations, etc. Nevertheless, three companies constitute a very small sample, and this fact must be borne in mind in evaluating the findings. There are several important implications in the use of sampling by the auditor. In the first place, the auditor's purpose in using confirmations of a sample of accounts cannot be to make all adjustments in the accounts, which are necessary. That could be done only by a complete examination, not on the basis of a sample. In the second place, it cannot be the purpose of an auditor in confirming a sample of account balances solely to reconcile and make adjustments where necessary in those accounts, which happen to fall into the sample. If that were the purpose, the auditor would be ignoring completely all accounts not in the sample. Rather, a sample of accounts is confirmed to provide the auditor with a picture of certain characteristics of all accounts or of the accounting process, as revealed by confirmations.

The article focuses on the problems in experimenting with the application of statistical techniques in auditing. Before statistical sampling techniques can be applied to any area, a clear statement of the purpose of sampling has to be developed. This statement of purpose is essential for the determination of the alternative decisions from which is to be made, of the criteria according to which the appropriate decision is to be chosen, and of the relevant statistical model for the population under study. Problems which arise in this initial stage may be extremely difficult ones. This paper discusses some of the problems of this initial stage in introducing statistical techniques in auditing, which must be solved before the more technical statistical problems, such as determination of the optimum sampling procedure, necessary sample size, and the like can be studied. Sampling is used extensively in auditing, for instance, in verifying transactions and in confirming balances of accounts receivable. It is important to distinguish between sampling in auditing and sampling of accounting records in general. In the latter area, some interesting results of the usefulness of statistical sampling techniques have been reported.

Reviews the book "Methods of Statistical Analysis in Economics and Business," by Edward E. Lewis.

It is the purpose of this article to describe some of the sampling tables, how they may be used, on what assumptions they are based, and their limitations. Interest in the use of statistical sampling techniques by auditors has grown recently. Articles in the journal "The Accounting Review," (1) The Arthur Andersen Chronicle, (2) The Woman C.P.A. and (3) the Journal of the American Statistical Association (4) testify to this development. The use of statistical techniques can furnish an auditor not only with more objective criteria as to the sample size required and the interpretation of the sample, but it would also probably reduce costs. These advantages have been stressed already. When applying statistical techniques to auditing, it is of great importance that these techniques be used correctly. This is particularly true at the initial stage of application, because poor results from the first uses of statistical tools may very likely lead an auditor to abandon them entirely. While there are definite limitations in the use of the sampling tables discussed in this article, it nevertheless appears clear that these tables can be of great help to the auditor. The selection of an appropriate sampling plan becomes simple, indeed, with the tables.

Auditing, Sampling, Dollar-unit sampling, Bayesian model

The primary purpose of incorporating a set of internal controls in the financial information system is to enhance the system's reliability-i.e., to maintain a high probability of preventing, detecting, and eliminating errors, irregularities, and fraud in the financial information system. The demonstrated reliability of the system provides evidence as to the quality of the output of the system. It is well accepted that the effectiveness of internal controls must be taken into account in determining the extent and nature of the audit procedures appropriate in a given examination.' The more reliable the system, the less extensive the tests the auditor need conduct. Recognizing this inverse relationship between effectiveness of internal control and audit scope, the American Institute of CPAs requires all auditors to initially evaluate the reliability of internal controls as a matter of audit standards.2 Recently, the Committee on Auditing Procedures of the AICPA released several statements on the subject of internal controls which re-emphasize the importance of the study of their reliability.3 But, despite this emphasis, the auditor currently does not possess a means to objectively evaluate the reliability of the internal control system. Conventionally, the auditor uses questionnaires, flow charts, and tests of transactions for evaluation pur-

James K. Loebbecke, John Neter, Considerations in Choosing Statistical Sampling Procedures in Auditing, Journal of Accounting Research, Vol. 13, Studies on Statistical Methodology in Auditing (1975), pp. 38-52