When performing estimation the auditor tries to determine the unknown misstatement in the population on the basis of a sample. Generally, estimation implies that there is a minimal amount of assurance to be obtained about the precision / accuracy of your estimate (i.e., the most likely error - the upper bound). This inference about the population misstatement can be performed using the `evaluation()`

function by specifying the `min.precision`

argument and providing the sample data or summary statistics.

Suppose your sampling objective is to estimate the misstatement with a precision of 2%. You have planned a sample of *n* = 188 items from which *x* = 1 turns out a contain an error. Standard classical evaluation using the Poisson distribution can be performed using the example code below.

`<- evaluation(min.precision = 0.02, method = "poisson", n = 188, x = 1) result_classical `

Calling the `summary()`

function on the result from the `evaluation()`

function provides the estimates for the most likely error, the 95% upper bound, and the precision.

`summary(result_classical)`

```
##
## Classical Audit Sample Evaluation Summary
##
## Options:
## Confidence level: 0.95
## Materiality: 1
## Min. precision: 0.02
## Method: poisson
##
## Data:
## Sample size: 188
## Number of errors: 1
## Sum of taints: 1
##
## Results:
## Most likely error: 0.0053191
## 95 percent confidence interval: [0, 0.025233]
## Precision: 0.019914
```

As we can see, the most likely error in the population is 1 / 188 = 0.53% and the 95% (one-sided) confidence interval ranges from 0% to 2.52%. Consequently, the precision of the estimate is 2.52% - 0.53% = 1.99%. This means that this sample provides sufficient information to estimate the misstatement in the population with a precision of 2%.

In principle Bayesian estimation follows the same procedure as its classical counterpart, with the exception that a prior distribution must be provided to the `evaluation()`

function. Therefore, the first step is to set up a prior distribution (see also the vignette Prior distributions). For illustration, we will assume a `default`

*gamma(1, 1)* prior distribution.

`<- auditPrior(method = "default", likelihood = "poisson") prior `

The sample outcomes together with the prior distribution can then be provided to the evaluation function. Once again, the `summary()`

function provides the estimates for the most likely error, the 95% upper bound, and the precision. Note that, because the prior is already constructed for use with a `poisson`

likelihood, the `method`

argument does not need to be provided to the `evaluation()`

function.

```
<- evaluation(min.precision = 0.02, n = 188, x = 1, prior = prior)
result_bayesian summary(result_bayesian)
```

```
##
## Bayesian Audit Sample Evaluation Summary
##
## Options:
## Confidence level: 0.95
## Materiality: 1
## Min. precision: 0.02
## Method: poisson
## Prior distribution: gamma(a = 1, ß = 1)
##
## Data:
## Sample size: 188
## Number of errors: 1
## Sum of taints: 1
##
## Results:
## Posterior distribution: gamma(a = 2, ß = 189)
## Most likely error: 0.005291
## 95 percent credible interval: [0, 0.0251]
## Precision: 0.019809
```

As we can see, the posterior distribution is a *gamma(2, 189)* distribution. This distribution implies a most likely error in the population is 0.53% and a 95% (one-sided) confidence interval that ranges from 0% to 2.51%. Consequently, the precision of the estimate is 2.51% - 0.53% = 1.98%. Also in the Bayesian framework, this sample provides sufficient information to estimate the misstatement in the population with a precision of 2%.

Derks, K., de Swart, J., van Batenburg, P., Wagenmakers, E.-J., and Wetzels, R. (2021). Priors in a Bayesian audit: How integration of existing information into the prior distribution can improve audit transparency and efficiency.

*International Journal of Auditing*, 25(3), 621-636.Stewart, T. R. (2012).

*Technical Notes on the AICPA Audit Guide Audit Sampling*. American Institute of Certified Public Accountants, New York.Stewart, T. R. (2013).

*A Bayesian Audit Assurance Model with Application to the Component Materiality problem in Group Audits.*VU University, Amsterdam.