CHAPTER TWO and THREE

Audit Tests and Audit Sampling

Chapter Objectives

At the end of this chapter, students will be able to:

 Describe the types of audit tests
 Define audit sampling
 Identify the type of audit procedures that do not involve audit sampling
 Discuss the different types of audit sampling
 Learn the sampling requirements of SAS No. 39
 Apply statistical and non-statistical sampling methods to tests of controls
and substantive tests.

Types of Audit Tests

 Generally, there are two types of audit tests:

a. Tests of controls
 Are procedures directed toward the evaluation of the effectiveness
of the design and implementation of internal controls.
 Design issue: evaluate whether the control has been properly
designed to prevent or detect material misstatements
 Implementation issue: evaluate whether the control is operating
effectively at a point in time
 Audit procedures that can be used for tests of control include:
 Inquiries of appropriate management, supervisory, and
staff personnel
 Inspection of documents, reports, and electronic files
 Observation of the application of specific control
 Walk-throughs (trace transactions from its origination to
its inclusion in the financial statements through inquiry,
observation, & inspection.)
 Reperformance of the application of the control by the
auditor.

b. Substantive tests
 Are procedures that provide direct evidence as to the fairness of
management’s financial statement assertions
 Provide monetary misstatements
 Detect material misstatements (Birr error or fraud) in an account balance,
transaction classes, and disclosure components of the financial statements.
 Three categories of substantive tests:
1. Substantive tests of transactions
 Test to detect error or fraud in individual transactions to get
evidence on:
 Validity  Valuation
 Completeness  Accuracy

1
 Cutoff audit objectives

2
 Example:
 Vouching the debits in accounts receivable to entries in the sales journal
and supporting sales invoices (vouching)=BACKWARD
 Testing whether the cost of goods included in the vendor’s invoice is
properly recorded in the Inventory and Accounts Payable account
(tracing)=FORWARD

2. Substantive Tests of account balances

 Involve examining support for the ending balance directly
 Concentrate on the details of amounts contained in an account balance in
order to establish whether any material misstatements are included in the
accounts presented in the financial statements
Example:
a. Test of Accounts Payable balance: The auditor may perform the following:
 Examine a sample of the individual vendor invoices for validity and valuation
objectives
 Send confirmation to vendors with zero balances in their accounts in order to
test the completeness objective
b. Test of Accounts Receivable Balance: confirming an ending balance
directly with the customers

3. Analytical Procedures
 Analytical procedures refer to the evaluation of financial information made by a
study of plausible relationships among both financial and non-financial data
 Knowledge of the client’s business and industry is the prerequisite for the proper
application of analytical procedures
 Analytical procedures may range from the use of simple comparison to the use of
more complex models.
 Examples of simple models include comparison and ratios
Example: comparing the current account receivable balance with the prior year’s or
budgeted balance
 Examples of ratios used in analytical procedures include:
a. short-term liquidity ratios (current ratio, quick ratio, and operating cash
flow ratio)
b. Activity ratios (Receivable turnover, ACP, Inventory turnover, inventory
period)
c. Profitability ratios (Gross profit margin, Net profit margin, ROA, ROE)
d. Coverage ratios (Debt-to- equity ratio, Times interest Earned ratio)
 The purposes of analytical procedures are:
 To assist the auditor in planning the nature, timing, and extent of other
audit procedures
 To obtain evidential matter about particular assertions related to account
balances or classes of transactions
 To get overall review of the financial information in the final review stage of
the audit

 The major types of analytical procedures include:

 Comparison of current year financial information with comparable prior
period after consideration of known changes
  Comparison of current year financial information with budgets, projections,
and forecasts
 Relationship among elements of financial information within the current
period
 Comparison of the client’s financial information with industry data
 Relationship of financial information with non-financial information (eg.
Number of employees, hours worked etc)

Audit Sampling

Meaning of Audit Sampling

 Sampling refers to the process of selecting a group of items from a large group of
items. The assumption of sampling is that the sample is the representative of the
population.
 Audit sampling refers to the application of an audit procedure to less than 100% of
the items within an account balance and class of transactions for the purpose of
evaluating some characteristic of the balance or class.
 Auditors may encounter two types of risk in evidence gathering process:
1. Sampling risk:
 the possibility that the sample drawn is not representative of the population
and, as a result, the auditor will reach an incorrect conclusion.
 Is a function of sample size. The larger the sample size, the lower the
sampling risk and vice versa.
 can be quantified using statistical sampling.
 can be reduced by increasing sample size
 Key issue: balance sampling risk- the cost of using large sample
2. Non-sampling risk: the possibility that the auditor uses inappropriate audit
procedures, fail to detect a misstatement when applying an audit procedure, or
misinterpret an audit result. It can not be quantified using statistical sampling. The
uncertainty related to such risk can be controlled by:
 Adequate training
 Proper planning
 Effective supervision
 Audit sampling is needed for audit test. However, all audit tests do not involve audit
sampling. Which audit tests do not involve sampling?

Audit Tests that do not involve sampling

a. Inquiry and Observation

 Are used extensively as a source of evidential matter such as:
  To understand the components of internal control
 To evaluate many of the inherent risk factors
 To establish the existence of some items

b. Analytical procedures
 Especially simple analytical procedures such as simple comparisons and ratio
analysis
c. Procedures applied to every item in the population
d. Classes of transactions or account balances not tested
 Because of an acceptably low risk of material misstatement or immateriality
e. Tests of automated information technology controls

Type I and Type II Errors

A. In Relation to Tests of controls

1. Type I Error (alpha)

 The risk that the assessed level of control risk based on the sample is greater
than the true operating effectiveness of the control
 Risk of assessing control risk too high

2. Type II Error (beta)

 The risk that the assessed level of control risk based on the sample is less
than the true operating effectiveness of the control
 Risk of assessing control risk too low

B. In relation to Substantive tests

1. Type I Error (alpha)
 The risk that the sample supports the conclusion that the recorded account
balance is materially misstated when it is not materially misstated
 Risk of incorrect rejection
 Relates to the efficiency of the audit (more audit work than necessary)
2. Type II Error (beta)
 The risk that the sample supports the conclusion that the recorded account
balance is not materially misstated when it is materially misstated
 Risk of incorrect acceptance
 Relates to the effectiveness of the audit (less audit work than necessary and
may lead to litigation against the auditor)

Allowance for Sampling Risk (Precision)

 Precision measures the closeness between a sample estimate and the population
characteristic being estimated.
 Allowance for sampling risk (AFSR) is the uncertainty that results from sampling.
It is the difference between the expected mean of the population and the tolerable
deviation or misstatement.
  Allowance for sampling risk is the range set by + and - limits from the sample
results within which the true value of the population characteristics being
measured is likely to lie.

Example:
1. Suppose an auditor expects that a control would have a 3% deviation (failure)
rate and s/he was willing to tolerate a deviation rate of 5%, the allowance for
sampling risk would be 2% (i.e. 5% - 3% = 2%).
2. Assume the auditor tested 50 items and found one deviation, the sample deviation
rate is 2% (i.e. 1/50 = 0.02). If the upper tolerable limit is 3.5%, the allowance
for sampling risk would be 1.5%.

Types of Audit Sampling

1. Non-statistical (or Judgmental) sampling
 The auditor considers sampling risk when evaluating the results of an audit sample
without using statistical theory to measure sampling risk
 Requires the auditor’s professional judgment to plan, perform, and evaluate the
sample evidence.
 Limitation: may not be as effective as statistical sampling.
2. Statistical Sampling
 Uses the laws of probability to select and evaluate the result of audit sample
 Helps the auditor:
 Design an efficient sample
 Measure the sufficiency of evidence obtained
 Quantify sampling risk
 Limitations (drawbacks):Involve additional costs of:
 Training auditors in the proper use of sampling techniques
 Designing and conducting the sampling application
 Three major types of statistical sampling plans may be used:
a. Attribute sampling
 Used to estimate the proportion of population that possesses specific
characteristic.
 Is commonly used for tests of controls
b. Monetary-Unit Sampling (MUS) or Probability-Proportional-to-Size Sampling (PPS)
 Uses attribute sampling theory and techniques to estimate the birr amount
of misstatement for a class of transactions or an account balance.
 designed to test for overstatements
 Its sampling unit is individual Dollar (Birr)
 is important for auditing accounts receivable, loans receivables, investment
securities, and inventory
 estimates the percentage of monetary units in a population that might be
misstated and then multiplies this percentage by an estimate of how much
the dollars are misstated.
 Advantages of MUS:
1. When the auditor expects no misstatement, MUS usually results in a
smaller sample size than classical variables sampling.
2. The calculation of the sample size and evaluation of the sample results are
not based on the variation between items in the population.
 3. When applied using the probability-proportional-to-size procedure, MUS
automatically results in a stratified sample.

 Disadvantages of MUS:
1. The selection of zero or negative balances generally requires special design
consideration.
2. The general approach to MUS assumes that the audited amount of the
sample item is not in error by more than 100%.
3. When more than one or two misstatements are detected, the sample
results calculations may overstate the allowance for sampling risk.

c. Classical Variables Sampling (CVS)

 Used to determine if a class of transactions or account balance is materially
misstated and aims at the rate of misstatement.
 uses normal distribution theory to evaluate the characteristics of a
population based on sample data. Auditors most commonly use classical
variables sampling to estimate the size of misstatement
 Its sampling unit is each transaction or account balance
 Advantages of CVS:
1. When the auditor expects a large number of differences between book
and audited values, this method will result in smaller sample size than
MUS.
2. The techniques are effective for both overstatements and
understatements.
3. The selection of zero balances generally does not require special sample
design considerations.

 Disadvantages of CVS:
1. Does not work well when little or not misstatement is expected in the
population.
2. To determine sample size, the auditor must estimate the standard
deviation of the audited value or differences.
3. If few misstatements are detected in the sample data, the true variance
tends to be underestimated, and the resulting projection of the
misstatements to the population is likely not to be reliable.

Requirements of SAS No. 39 regarding Audit Sampling

1. Planning
 The audit sampling application must be well-planned and give adequate
consideration to:
 The relationship of the sample to the objective (s) of the test
 The maximum deviation rate from a control that would support the planned
level of control risk for tests of controls
 The amount of monetary misstatement in an account balance that may exist
without causing financial statements to be misstatement in substantive test.
 The risk of assessing control risk too low or the risk of incorrect acceptance

2. Sample Selection Methods
 The sample should be the representative of the population
 All items must have the opportunity to be selected
 May use the following sample selection methods:
a. Random selection (the use of random number table and can be used for both
non-statistical and statistical sampling)
b. Systematic selection (requires the determination of sampling interval and a
starting number, and can be used for both non-statistical and statistical
sampling)
c. Haphazard selection (selection of sampling units without any conscious bias
and used for non-statistical sampling
d. Stratified sampling (dividing the population in to strata and select a sample
from each stratum)
e. Block sampling (the sample consists of all items in a selected time period,
numerical sequence, or alphabetical sequence)

3. Performance and Evaluation

 Must address four issues:

a. The auditor must consider the effect of not being able to apply a planned audit
procedure to a sampled item
b. The auditor should project the sample results to the population being tested
and compare those results with the planned amounts
c. The auditor must give appropriate consideration to sampling risk
d. The auditor must adequately consider qualitative aspects of misstatements
such as:
 The nature and causes of misstatements
 The possible relationship of the misstatement to other phases of
the audit

Application of Audit (attribute) Sampling to Tests of Control

Attribute sample is concerned with one-sided test because the auditor is generally
concerned with the maximum deviation rate in the population.

Step 1: State the objectives of the audit test.

 The objective is to evaluate the operating effectiveness of internal control

Step 2: Define the control deviation conditions

 A deviation is a departure from adequate performance of the internal control

 It is necessary to clearly define the situation in which deviation occurs.
Eg. Let’s say the objective of the test is to check whether purchase invoice was
approved by the finance manager before being recorded. A purchase order which
was not approved (no signature & stamp) by the finance manager is considered
deviation.
Step 3: Define the population & sampling units

 Population: Population depends on the objective of the test. If the objective of the
test is to check whether purchase invoice was approved by the finance manager
before being recorded, all purchase orders received during the period are
considered population. The auditor should ensure that the sample frame is
complete.
 Sampling unit: Sampling unit refers to the individual members of the population.
A sampling unit may be a document, an entry or a line item. In the above example,
the sampling unit is individual purchase invoice.

Step 4: Determine the sample size

 Factors to be considered in determining the sample size:

1. Determining the acceptable risk of assessing control risk too low
 the risk that the sample will support the auditor's planned degree of reliance on
the control when the true deviation rate for the population does not justify such
reliance (type II error)
 Its determination is primarily based on the auditor’s professional judgment
 the auditor should consider the importance of the audit objective
 There is an inverse relationship between the risk of assessing the risk control
risk too low and sample size
 The smaller the risk of assessing control risk too low, the larger the sample size
must be.
 Factors to be considered in setting the acceptable risk of assessing control risk
too low:
a. Effectiveness concern
b. Efficiency concern

2. The tolerable deviation rate

 the maximum deviation from a prescribed control that the auditor is willing to
accept without altering the planned assessed level of control risk
 The suggested tolerable deviation rates for assessed levels of control risk
Planned assessed level of Tolerable deviation
control risk rate
Low 3 - 7%
Moderate 6 - 12%
Slightly below maximum 11 - 20%
Maximum Omit test

 The tolerable deviation rate is inversely related to the sample size

 The lower the tolerable deviation rate, the larger the sample size
 The concern of the auditor is whether the true deviation rate exceeds the
tolerable deviation rate
 There is direct relationship between the planned assessed level of control risk
and tolerable deviation rate
3. The expected population deviation rate
 is the deviation rate that the auditor expects to exist in the population
  can be developed based on prior years' results, paste experience from similar
tests on other engagements, or on a pilot sample
 The expected population deviation rate has a direct relationship to sample size.
 The larger the expected population deviation rate, the larger the sample size
must be.
 If the auditor believes that the expected population deviation rate exceeds the
tolerable deviation rate, the statistical test should be omitted and substantive
tests should be used.

The effect of Sample Selection Factors on Sample Size

Factors Relationship to Examples
sample Change in Factor Effect on Sample
Acceptable risk of Lower Increase
assessing control risk Inverse Higher Decrease
too low
Tolerable Deviation rate Inverse Lower Increase
Higher Decrease
Expected Population Direct Lower Decrease
deviation rate Higher Increase

Once the above three factors are determined, the appropriate sample size is determined
from the table following on the following page:

Step 5: Select the sample

Once the sample size is determined, the sample will be selected using the appropriate
techniques

Step 6: Perform the audit procedures/Test the sample items/

 In conducting the planned audit procedures, the following are not considered deviation
 properly Voided documents
 Unused or inapplicable documents
 If the auditor is unable to examine a sampled item, the sample item is considered a
deviation
 If a large number of deviations are detected early in the tests of controls, the auditor
should consider stopping the test because the result of the test will not support the
planned assessed level of control risk
Step 7: Evaluate the Sample Result

1. Calculate the sample results

 involves summarizing the deviations by the controls tested and evaluating the
results
 involves calculating the sample deviation rate and the computed upper deviation
rate
a. Sample deviation rate
 is the number of deviations in the sample divided by the number of items in
the sample
 represents the auditor's best estimate of the population's deviation rate.
However the auditor must consider allowance for sampling risk
b. Computed upper deviation rate
 is the sum of sample deviation rate and allowance for sampling risk
 represents the upper limit for population deviation rate
2. Performing Error Analysis

 involves evaluating the qualitative aspects of the deviations identified

 Involves two considerations:
a. the nature of each deviation and its cause
 Error or fraud?
 Misunderstanding of instructions or carelessness?
b. the impact of the deviation on other phases of the audit

Step 8: Draw final conclusion

 involves comparing the tolerable deviation rate to the computed upper deviation
rate
 If the computed upper deviation rate is less than or equal to the tolerable
deviation rate, the auditor can conclude that the controls can be relied on
 If the computed upper deviation rate exceeds the tolerable deviation rate, the
auditor may perform the following:
1. Modify sample size
2. Modify tolerable deviation rate
3. Conclude that the controls are not operating at an acceptable level.
 The auditor's professional judgment of the results of tests of control affects the final
conclusion.
Step 9: Document the sampling Procedures
 All steps performed so far should be documented in the auditor’s working papers
 Application of Audit Sampling to Substantive Tests-Monetary Unit Sampling

Step 1: State the objectives of the audit test

 When auditors sample for tests of details of balances, the objective is to determine
whether the account balance being audited is fairly stated.
 Sampling may be used for substantive testing to test the reasonableness of
assertions about a financial statement amount, and to develop an estimate of some
amount.

Step 2: Define Misstatement Conditions

 Misstatement conditions are any conditions that represent a monetary
misstatement in a sample item.
 A misstatement is defined as the difference between monetary amounts in the
client’s records and amounts supported by audit evidence.
 When the client’s amount deviates from amount supported by audit evidence,
misstatement is said to occur. However, it may not be material in amount.
Step 3: Define the population and the sampling units
 In testing for the existence objective, the recorded dollar population is the
population.
 For MUS the population is defined as the monetary value of an account balance,
such as accounts receivable, investment securities, or inventory
 For MUS, an individual dollar represents the sampling unit. However, the auditor
tests not individual birr but rather the account or the transaction that contains the
selected birr.

Step 4: Determine the sample size

 Factors to be considered:
1. Variation within the population
 Population variation and sample size have direct relationship in classical
variables sampling.
 As population variation increases, the sample size should increase
  Population variation Can be minimized by stratifying the population
 Population variation does not affect the sample size when monetary unit
sampling is used because the sample selection method considers indirectly.

2. Acceptable risk of incorrect acceptance (type II error)

 There is an inverse relationship between risk of incorrect acceptance and the
sample size
 The lower the risk for incorrect acceptance, the larger the sample size must be
3. Tolerable misstatement
 The tolerable misstatement is the amount of the preliminary judgment about
materiality that is allocated to an account
 The tolerable misstatement is the maximum amount by which the account can
be misstatement with the auditor still accepting the account as being fairly
presented
 Tolerable misstatement is inversely related to sample size.
 The lower the amount of tolerable misstatement, the larger the sample size must
be.
4. Expected misstatement
 The expected misstatement is the amount of misstatement that the auditor
believes exists in the population.
 The expected misstatement can be developed based on the assessment of
inherent risk, prior year's results, a pilot sample, the results of related
substantive tests, or the results of tests of controls.
 There is a direct relationship between expected misstatement and sample size.
 The larger the expected misstatement, the larger the sample size must be
Determination of sample size for Monetary-Unit Sampling:
5. Population size
 Attribute sampling table can be used
 Population size is directly related to sample size
 Steps:
The largerthe
 Determine
1. therisk
population size,
for incorrect the larger the sample size must be.
acceptance
2. covert the tolerable misstatement and the expected misstatement to
percentages of book value
3. Determine sample size using the following formula:

n= BV XRF
(TM-(EM x EF))

Where,
n = sample size BV = Book Value
\ TM = Tolerable Misstatement EM = Expected Misstatement
EF = Expansion Factor RF = Reliability Factor

Example: Suppose the auditor has established a tolerable misstatement of Br.

250,000 and an expected misstatement of Br. 50,000 for an account receivable
account with a book value of Br. 5,000,000. The risk of incorrect acceptance is 5%
and the corresponding reliability factor and expansion factor (adjustment of
expected misstatement for the risk of incorrect acceptance) are 3.00 and 1.6
respectively. Note that the reliability factor and expansion factor are obtained from
relevant tables.
a. Tolerable misstatement rate = 250,000/5,000,000 = 0.05
b. Expected misstatement = 10,000/5,000,000 = 0.01
c. Sample size (n)

Sample size (n) = 5,000,000 X 3

(250,000-(50,000 x 1.6)
n = 88
Step 5: select the sample items

For Monetary-Unit Sampling, (by applying systematic sampling method) probability-

proportional-to-size method is used, which gives each birr in the population an equal
change of being selected and divides the population in to equal groups of birr. Each group
of birr represents a sampling interval, which is obtained by dividing the book value of the
population by the sample size

Assume a client’s book value of accounts receivable is Br.5,000,000, and the auditor
determined a sample size of 88. The sampling interval will be Br. 56,818. The auditor
randomly selects a number between o and 56,818 and then select every 56,818 th Birr to
identify the balance to be included in the sample.

Step 6: Perform the audit procedures/Test of

 After the sample items have been selected, the auditor conducts the planned audit
procedures on the logical units containing the selected dollar sampling units.
Step 7: Evaluate the sample results
1. Calculate the sample results
 projecting the misstatement detected in the sample to the population (called
misstatement limit), which represents the mean misstatement in the population
 calculating an allowance for sampling risk and add it to the projected
misstatement in order to determine the misstatement limit

2. Perform error analysis

Step 8: Draw final conclusions

 Tolerable misstatement is compared to the sum of projected misstatement and
allowance for sampling risk (misstatement limit)
 If the sum of projected misstatement and allowance for sampling risk is less than or
equal to tolerable misstatement, the auditor can conclude that the account is not
materially misstated for the tested assertion
 The sum of projected misstatement and allowance for sampling risk is greater than
tolerable misstatement, the auditor can conclude that the account is materially
misstated for the tested assertion. When faced with this situation, the auditor may:
1. Increase the sample size.
2. Perform other substantive procedures.
3. Request the client adjust the accounts balance.
4. If the client refuses to adjust the account balance, the auditor would consider
issuing a qualified or adverse opinion.

Step 9: Document the sampling procedures

Illustration on Monetary Unit Sampling Method to Substantive Tests

The auditors wish to test the valuation of accounts receivable in the audit of ABC Company with the objective of
ascertaining whether the balance is fairly stated. The client has Br. 2,500,000 of total recorded receivables,
composed of 250 accounts. The auditors have determined the following:
Tolerable misstatement (error) Br. 50,000
Risk of incorrect acceptance 10% (Reliability Factor = 2.31)
Expected misstatement (error) Br. 20,000 (Expansion factor = 1.50)
The auditors have decided to use Probability-proportional-to-Size Sampling. Assume that the auditors have tested
the sample and discovered the following four misstatements:
Book value (BV) Audited Value (AV)
Br. 1000 920
4000 3500
5000 4800
9800 9000
Required:
1. Compute the following:
a. the required sample size
b. sampling interval
c. projected misstatement
d. Basic precision
e. Incremental allowance
f. Upper limit on misstatement
2. Draw final conclusion about the fairness of accounts receivable balance

Solution
1. Computations
a. Sample size = 2,500,000 x 2.31_____ = 289
50,000 – (20,000 x 1.5)
b. Sampling interval = 2,500,000/289 = 8651
c. Projected misstatement:
 Projected misstatement in the population is the sum of projected misstatement for each account
identified as misstatement. It can be computed by considering the following cases:
Case 1: When BV of the misstated account is less than the sampling interval
Projected misstatement = Tainting Percentage x Sampling interval
Tainting percentage = the percent of misstatement in the account
= (BV – AV) /BV
Case II: When BV of the misstated account is equal to or greater than the sampling interval
Projected misstatement = the actual misstatement in the account
= BV – AV
Thus, total projected misstatement in the population = case 1 + case 2
BV Audited value Misstatement Tainting % Sampling Projected
interval misstatement
Br. 1000 920 80 0.08 8651 692
4000 3500 500 0.125 8651 1081
5000 4800 200 0.04 8651 346
9800 9000 800 NA NA 800
19,800 18,220 1580 2919

d. Basic precision = Reliability factor X sampling interval

= 2.31 x 8651 = 19,984

e. Incremental allowance
Steps:
 Rank the projected misstatement for accounts with BV less than the sampling interval (from
largest to smallest)
 Multiply each projected misstatement by the incremental reliability factor, reduced by one
 Sum the resulting amounts to get Incremental Allowance
Reliability factor Increment Increment – 1 Projected Incremental
misstatement Allowance
2.31 - - - -
3.89 1.58 0.58 1081 627
5.33 1.44 0.44 692 305
6.69 1.36 0.36 346 125
1057

f. Upper limit on misstatement = projected misstatement + Basic precision + Incremental allowance

= 2919 + 19,984 + 1057 = 23,960
2. Draw final conclusion
Decision rule: If the upper limit on misstatement is less than or equal to the tolerable misstatement, we
conclude that the balance is not materially misstated. Since upper limit on misstatement of Br.23,960 is less
than tolerable misstatement of Br. 50,000, we can conclude that account receivable balance is not materially
misstated.
 If the upper limit on misstatement were greater than the tolerable misstatement, the auditor may:

 Increase the sample size.

 Perform other substantive procedures.
 Request the client adjust the accounts receivable balance for 26,040 (i.e. 50,000 – 23,960).
 If the client refuses to adjust the account balance, the auditor would consider issuing a qualified or
adverse opinion.

Note
 The expansion factor has direct effect on sample size
 The smaller the specified risk of incorrect acceptance, the larger the expansion factor
 When the sample includes no misstatements, the projected misstatement is equal to zero. Thus, upper limit
on misstatement consists only of basic precision.
 For calculating the sample size, the zero misstatement row of the reliability factor table is always used.