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Bounds for monetary-unit sampling in auditing: an adjusted empirical likelihood approach

Author

Listed:
  • Yves G. Berger

    (University of Southampton)

  • Paola M. Chiodini

    (University Milano-Bicocca)

  • Mariangela Zenga

    (University Milano-Bicocca)

Abstract

It is common practice for auditors to verify only a sample of recorded values to estimate the total error amount. Monetary-unit sampling is often used to over-sample large valued items which may be overstated. The aim is to compute an upper confidence bound for the total errors amount. Naïve bounds based on the central limit theorem are not suitable, because the distribution of errors are often very skewed. Auditors frequently use the Stringer bound which known to be too conservative. We propose to use weighted empirical likelihood bounds for Monetary-unit sampling. The approach proposed is different from mainstream empirical likelihood. A Monte–Carlo simulation study highlights the advantage of the proposed approach over the Stringer bound.

Suggested Citation

  • Yves G. Berger & Paola M. Chiodini & Mariangela Zenga, 2021. "Bounds for monetary-unit sampling in auditing: an adjusted empirical likelihood approach," Statistical Papers, Springer, vol. 62(6), pages 2739-2761, December.
    • Handle: RePEc:spr:stpapr:v:62:y:2021:i:6:d:10.1007_s00362-020-01209-w
    DOI: 10.1007/s00362-020-01209-w
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    References listed on IDEAS

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    1. Fishman, George S., 1991. "Confidence intervals for the mean in the bounded case," Statistics & Probability Letters, Elsevier, vol. 12(3), pages 223-227, September.
    2. Kvanli, Alan H & Shen, Yaung Kaung & Deng, Lih Yuan, 1998. "Construction of Confidence Intervals for the Mean of a Population Containing Many Zero Values," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 362-368, July.
    3. Clayton, Howard R. & McMullen, Patrick R., 2007. "Combining approaches for evaluating auditing populations: A simulation study," European Journal of Operational Research, Elsevier, vol. 178(3), pages 907-917, May.
    4. Beck, Pj, 1980. "A Critical Analysis Of The Regression Estimator In Audit Sampling," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 16-37.
    5. G. Pap & M. C. A. van Zuijlen, 1996. "On the asymptotic behaviour of the Stringer bound1," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 50(3), pages 367-389, November.
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