Audit Sampling

Audit Sampling

1. Sampling allows an auditor to draw conclusions about transactions / balances without incurring the time & cost of examining every transactions. It is generally used in field audit when it is not efficient to review 100% of the records

   • Sampling is generally used in field audits when it is not efficient to review 100% of the records. Sampling may also be used if records are missing or other circumstances make reviewing all of the records difficult.

2. Representative sample is one in which the characteristics in the sample of audit interest are approximately the same as those of the population. 2 Types of Representative Sample :

   • Non-Sampling Risk
     • risk that the audit tests do not uncover existing exceptions in the sample
   • Sampling Risk
     • risk that an auditor reaches an incorrect conclusion because the sample is not representative of the population
   • Audit Risk = Sampling Risk + Non-Sampling Risk

3. Statistical Sampling

   • Applies the laws of probability theory to assist the auditor in designing a sampling plan and subsequently evaluating the results of the sample.
     • Probabilistic Sample Selection
     • Stratification Illustrated
     • Disadvantages: Overvalue the evidence it provides ► Reduces auditor skepticism ► Increased cost ► Train auditors ► Design samples

4. Non-Statistical Sampling

   • Is solely based on the auditor’s judgment.
     • Nonprobabilistic Sample Selection

5. Applications of Sampling in the audit

   • Attribute Sampling
     • The use of sampling for compliance testing (qualitative characteristic)
     • Sampling Risk
       • Risk of Underreliance Control Risk Too High
         • Not relying on the internal controls when, in fact, the auditor should rely on internal control.
       • Risk of Overreliance Control Risk Too Low
         • Relying on internal controls when it is not appropriate.
   • Variables Sampling(Test of Account Balances)
     • The use of sample for substantive test on the client’s account balances (quantitative characteristic)
     • Sampling Risk
       • Risk of Incorrect Rejection
         • Auditor’s sample indicates that the account balance is materially misstated even though it is fairly stated.
       • Risk of Incorrect Acceptance
         • Auditor’s sample indicates that the account balance is fairly stated even though the account balance is materially misstated.

6. Sample Characteristics

   • ► Precision – Represents the closeness of the auditor’s sample estimate to the true (but unknown) population value.
   • Reliability – is the probability that the auditor’s sample provides a sample estimate that is of a specified precision.