Lessons · Accounting · projecting what you found to what you did not look at
Projecting what you found onto what you did not look at
A misstatement found in a sample is not the misstatement in the population. It has to be projected: scale the error found by the relationship between the sample and the whole, then compare the projected figure against materiality.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
Without projection, a small error in a small sample looks harmless and can be the visible corner of something well past the line. The arithmetic is simple and it changes the conclusion, which is why it is done before deciding whether anything needs correcting.
How to think about it
Take the misstatement found, divide by the value of the sample, and multiply by the value of the population. Compare with materiality and with performance materiality, and say which line it crosses.
Worked example
Sample worth 500,000, drawn from a population of 8,000,000The sample is one sixteenth of the whole.
Misstatement found in the sample: 7,000What was actually seen.
Projected = 7,000 / 500,000 × 8,000,000 = 112,000What the population probably contains.
Compare with materiality and with the working figureBelow one and above the other is the common and interesting case.
Your turn
Sample worth 500,000 from a population of 8,000,000, error 7,000. Write the projection line.
Projected = 7,000 / 500,000 × = 112,000
Solve one, graded on the server
The trap
Comparing the error found in the sample against materiality directly. It understates the problem by the whole ratio of the population to the sample, and here it would make 112,000 look like 7,000.