FYI: Difference Estimation

**This approach involves identifying the dollar differences between the sample's audit values and applicable book values.** Sample size—As previously described. Note that we usually need at least 30 differences between audit and book values in our sample when using “difference estimation.” 1. Estimate the population's implied audit value. Calculate the average difference between the audit value (av) and book value (bv) for items in the sample: d = (av – bv)/n 2. Extend that average difference to the population by multiplying it by the number of items in the population: D = d * N 3. Calculate the implied population audit value (the “point estimate”) by adding the calculated difference for the population to the population's book value: AV = BV + D, where D can be either positive or negative