A sequential discovery sampling procedure

A sequential discovery sampling procedure is to randomly sample and audit one record at a time until either a first record containing a major fault is discovered or a pre-determined maximum number of successive fault-free records has been sampled. If a major fault is discovered, the sampling is terminated and the account is rejected. If no major fault is discovered, the account is accepted and the auditor provides a confidence interval and associated confidence level for the true proportion of records in the account containing major faults. A dynamic programming model incorporating the auditor's degree of belief regarding the existence of records in the account containing major faults, sampling costs and the value of discovery of a major fault is presented. The implied confidence level associated with the optimal maximum sample size of the dynamic programming model provides valuable supplementary information for an auditor in the provision of the confidence level for the required confidence interval.