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AUDITING THEORY AUDIT SAMPLING (And Other Means of Test ing

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Red Sir ug

Means for Selecting Items for Testing to Obtain Audit Ev idence:  When designing tests of controls and tests of details, the auditor shall determine the means of selecting items for testing that are effective in meeting the purpose of the audit procedure.  The means available to the auditor for selecting items for testing are (the auditor may use any one or combination of these): a. Selecting all items (100% examination); b. Selecting specific items; and c. Audit sampling Select ing All Items (100% Examinat ion): Select ing all items – involves examining the entire population of items that make up a class of transactions or account balance 100% examination is:  More common for tests of details  Unlikely for tests of controls  Appropriate when:  The population constitutes a small number of large value items  There is significant risk (high RMM) and other means do not provide sufficient appropriate audit evidence, or  Cost effective – the repetitive nature of a calculation or other process performed automatically by an information system makes a 100% examination cost effective (for example, using computer-assisted audit techniques (CAATs) Select ing Specific Items:

Select ing specific items – judgmental selection of specific items from a population based on the following factors:  Auditor’s understanding of the entity  Assessed risk of material misstatement  Characteristics of the population being tested
Specific items that may be selected by the auditor include:  High value or key items . The auditor may examine items of high value or items that exhibit some other characteristic (for example, items that are suspicious, unusual, particularly risk-prone or that have a history of error).  All items over a certain amount. The auditor may decide to examine items whose values exceed a certain amount so as to verify a lar ge proportion of the total amount of a class of transactions or an account balance.  Items to obtain information. The auditor may examine items to obtain information about matters such as the nature of the entity or the nature of transactions.  Items to test control activities . The auditor may use judgment to select and examine specific items to determine w hether or not a particular control activity is being performed.   Selecting specific items for examination does not constitute audit sampling and therefore, not subject to sampling risk. The results of audit procedures applied to selected specific items cannot be projected to the entire population; accordingly, selective examination of specific items does not provide audit evidence concerning the remainder of the population.

Audit Sampling:

Audit sampling (sampling) – the application of audit procedures to less than 100% of the items within a population of audit relevance (account balance or class of transactions) such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on whi ch to draw conclusions about the entire population  Audit sampling is the means that enable the auditor to draw conclusions about the population on the basis of testing a sample draw n from it.  Sampling is essential throughout audits as auditors attempt to gather sufficient appropriate evidence in a cost efficient manner.  Audit sampling is not required part of any audit procedure because when designing audit procedures, the auditor should determine appropriate means of selecting items for testing.  Audit sampling is used for both tests of controls (attributes sampling) and for tests of details of transactions and balances ( variables sampling). In both attributes sampling and variables sampling, the plans may be either non-statistical or statistical. AT – Audit Sampling Red Sirug Page 1

also known as population item.  Anomaly – a misstatement or deviation that is demonstrably not representative of misstatements or deviations in a population  Confidence level – the mathematical complements of sampling risks. it is the auditor's best estimate of the amount of error the auditor expects to find in the population b. Analytical procedures c. it is the auditor's best estimate of the rate of deviation from a prescribed control procedure in the population Applicability of Audit Sampling:  Where an auditor has no special knowledge about likely misstatements contained in account balances and transactions  When the auditor believes that the sample is to be a good representative of the population Inapplicability of audit sampling: Situations w here audit sampling generally do not apply: a. Expected error amount – in substantive tests. (Generally. Tests of automated application controls when effective general controls are present.. b.g. w hen performing substantive procedures. such contr ols would only be tested once or a few times. d. it is the maximum rate of deviation from the prescribed control procedure the auditor is willing to accept without changing control risk assessment or planned reliance on internal control Error – either contr ol deviations. Random selection of a sample. Procedures applied to ever y item in a population d. or misstatements. or other controls that do not provide documentar y evidence of performance (e. tracing several transactions through accounting system to obtain understanding) f. Statistical sampling – an approach to sampling that has the following characteristics: a.g. Inquir y and obser vation b. each of which is a group of      sampling units which have similar characteristics (often monetary value) Tolerable misstatement (in substantive procedures) – a monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population. Procedures from which the auditor does not intend to extend a conclusion to the remaining item in the account (for example. Expected deviat ion rate – in tests of control. Total error – either the rate of deviation (in case of tests of control) or total misstatement (in case of substantive procedures) Anomalous error – means an error that arises from an isolated event that has not recurred other than on specifically identifiable occasions and is therefore not representative of errors in the population Expected error – a. Risk assessment procedures performed to obtain an understanding of internal control.Audit Sampling Ter ms:  Populat ion – the entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions  Sample – the portion of the population that will be subjected to audit testing  Sampling unit – the individual items constituting a population. Lists procedures that do not involve sampling: a. when performing tests of contr ol. it is the maximum total error in a population that the auditor is willing to accept Tolerable rate of deviat ion (in tests of controls) – a rate of deviation from prescribed inter nal control procedures set by the auditor in respect of w hich the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population. observation. also known as reliability or   confidence Stratificat ion – the process of dividing a population into sub-populations. Use of probability theor y to evaluate sample results. controls related to segregation of duties). examination of the effectiveness of activities performed by those charged with governance). Tests of controls where application is not documented e. Untested balances General Approaches to Audit Sampling: 1. or elementary unit  Representative sample – a sample in which the characteristics of the sample are the same as those of the population  Sampling risk – The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.. Some tests related to the operation of the control environment or the accounting system (e. Analyses of security and access contr ols.) c. including measurement of sampling risk AT – Audit Sampling Red Sirug Page 2 . and b.

      Statistical sampling applies the law of probability theor y to aid the auditor in designing a sampling plan and evaluating sample results.  Both sampling approaches involve judgment in planning. In other wor ds. precision. b.  Conclusions may be drawn in more precise ways when using statistical sampling methods. Quantify/measure sampling risk so as to limit it to an acceptable level.  A properly designed non-statistical sampling application can be as effective as statistical sampling application. Select the appropriate sampling method. The choice is based primarily on the auditor’s assessment of the relative costs and benefits. Results are evaluated quantitatively.  Sampling methods are used by auditors in both control testing and substantive testing. Evaluate the appropriateness of audit evidence. variables sampling).  One disadvantage is that it can misdirect an auditor to unreliable sampling units. Auditors rely exclusively on subjective judgment to determine sample size and to evaluate sample results. Consider sampling risk. Evaluate the results obtained from the sample and project those results to the population. Evaluate the nature of deviations or errors. e. Statistical sampling measures quantitatively the sampling risk (the risk from testing only part of an audit population). whereas non-statistical sampling is a more subjective approach. and sampling error (sampling risk). the plans may be either non-statistical or statistical. Types of Audit Sampling Plan: Audit sampling is used for both tests of controls (attributes sampling) and for tests of details of transactions and balances (usually. it is not a substitute for professional judgment. The sample size is not determined mathematically. Advantages of statistical sampling: Conclusions may be drawn in more precise ways when using statistical sampling because it enables the auditor to: a. test of controls that depend on segregation fo duties or otherwise provide no audit trail of documentary evidence) In statistical sampling. Variables sampling – estimates the numerical quantity of a population  Applicable to substantive testing because variables sampling deals with peso or monetary amount of misstatement in account balances AT – Audit Sampling Red Sirug Page 3 . Auditor’s professional judgment:  Although statistical sampling aids the auditor in quantitative ways.  Both sampling approaches can pr ovide sufficient appropriate evidence. d. statistical sampling does not eliminate the need for the auditor’s professional judgment. Measure the sufficiency of the audit evidence obtained. Measure reliability (confidence level). Non-statistical sampling – a sampling approach that does not have both characteristics of statistical sampling  Non-statistical sampling (or judgment sampling) is based solely on the auditor’s judgment. e. 2. b. Design an efficient sample. auditors specify the sampling risk they are willing to accept and then calculate the sample size that provides that degree of reliability.  It is acceptable for auditors to use either or combination of statistical and non-statistical sampling. and evaluating the results of the sample. Additional notes on statistical and non-statistical sampling:  Statistical sampling is a mathematical approach to inference. Disadvantages of statistical sampling:  Danger of accepting statistical evidence at face value without sufficient skepticism  Its cost could exceed the benefits  Inappropriate it some cases (for example. and f. d. 1. Attribute sampling – estimates the attribute or quality characteristic of a population  Applicable to tests of controls because attribute sampling deals with estimating deviation rate (also called rate of occurrence) from prescribed control procedures that the auditor plans to rely upon 2. Such choice is independent of the selection of audit procedures because audit sampling is merely a means for accomplishing audit procedures. Provide an objective basis for quantitatively evaluating sample results –more objective audit evidence c. Define the population and the sampling unit. random sample selection methods should be used to give all items in the population an equal chance to be included in the sample to be audited. c. In statistical sampling.  The auditor must exercise professional judgment in both statistical and non-statistical sampling to: a. In both attributes sampling and variables sampling. executing the sampling plan.

. Substant ive testing sampling r isks: 1) Risk of incorrect acceptance – the risk that the auditor will conclude that a material error in an account balance (based on the sample) does not exist when in fact it does (i. sample results fail to identify an existing material misstatement).  Ordinarily. conclusion that a material error exists when in fact it does not Aspects of Audit Risk(Aspect of detection r isk): Audit risk is a combination of the risk that a material misstatement will occur (inherent risk and control risk) and the risk that it will not be detected by the auditor (detection risk). Risk of assessing control risk too low – in case of a test of control. leading to audit inefficiency.e. the auditor's conclusions base on a sample may be different from the conclusions which would have been reached had the tests been applied to all items in the population  Sampling risk is the aspect of audit risk and of detection risk that is due to sampling.  The possibility that even though a sample is properly chosen. sample results mistakenly indicate a material misstatement). including internal control.  This risk means that the auditor wrongly concludes that the control risk is higher than it actually is..e.  Sampling risk is an inherent part of sampling tha t results from testing less than the entire population. Audit sampling for substantive procedures applies to tests of details only. Tests of controls sampling risks: a. Analysis of Sampling Risks: AT – Audit Sampling Red Sirug Page 4 . when a test of controls or a substantive test is restricted to a sample. conclusion that a material error does not exist w hen in fact it does 2. 2) Risk of incorrect rejection – the risk that the auditor will conclude that a material error in an account balance exists w hen in fact it does not (i. b. Risk that affects audit effectiveness and may lead to an inappropr iate audit opinion (“Beta risk” or “Type II error”) – the risk the auditor will conclude that: a. that the assessed control risk is lower than it actually is b. Aspects of sampling r isk: a. Sampling r isk – the risk or the possibility that.. it may not be representative of the population. sample results indicate a greater deviation rate than actually exists in the population). If the auditor assesses control risk too low.  Sampling risk can be reduced by increasing the sample size. b. do not involve the use of audit sampling.  The risk that the sample is not representative of the population and that the auditor's conclusion will be different from the conclusion had the audi tor examined 100% of the population. that the assessed control risk is higher than it actually is b. based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure.  This risk relates to audit effectiveness. 1. Risk of assessing control risk too low or the risk of over reliance (Beta risk or Type II error) – the risk that the assessed level of control risk (based on the sample) is less than the actual/true level of control risk (i. This would more likely lead to an inappropriate audit opinion. Risk of incorrect acceptance – in case of a substantive test. Risk of assessing control risk too high or the risk of under reliance (Alpha risk or Type I error) – the risk that the assessed level of contr ol risk (based on the sample) is greater than the true level of control risk (i. substantive tes ts will not be expanded to the necessar y level to ensure an effective audit.e. Risk of incorrect rejection – in case of a substantive test.e. If the auditor assesses control risk too high. Risk of assessing control risk too high – in case of a test of control.  This risk relates to audit efficiency as it w ould lead o additional w ork..  This risk means that the auditor wrongly concludes that the contr ol risk is lower than it actually is. Sampling Risk: Sampling risk – the possibility that the auditor’s conclusion. Two Types of Sampling Risk: 1. Ris k that affects audit efficiency as it would usually lead to addit ional wor k to establish that initial conclusions were incorrect (“Alpha risk” or “Type I error”) – the risk the auditor will conclude that: a. substantive tests will consequently be expanded beyond the necessary level. sample results indicate a lower deviation rate than actually exists in the population). risk assessment procedures to obtaining understanding of the entity and its environme nt.

stamped "paid") to prevent duplicate payments?" Commonly used attribute sampling techniques/ models: a. Attribute estimat ion sampling – a statistical sampling plan that uses a fixed sampling plan (for example. Or there may be errors in the sample which the auditor fails to recognize (nonsampling risk). in fact. Non-sampling risk – the risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk Examples of non-sampling risk:  The auditor might use/select inappropriate audit procedures (audit procedures that are not appropriate to achieve a specific objective)  The auditor might misinterpret evidence or the results of audit tests  The auditor may fail to recognize an error (for example.. Non-sampling risk can be controlled by adequate planning and super vision of audit wor k and proper adherence to quality control standards. the auditor may find no errors in a sample and conclude that control risk is low. "Are time cards properly authorized (i. Types of Statistical Sampling Plans: 1. For example. For example. It refers to the possibility that auditors will arrive at an erroneous conclusion not because of the chosen sample but due to other factors. unacceptably high (sampling risk).Aspects of sampling r isks Risk of incorrect acceptance Auditor’s wrong conclusion Not materially misstated when in fact materially misstated Materially misstated when in fact not materially misstated ↓CR than actual CR – internal control is reliable Effect on audit wor k because of wrong conclusion Performance of less extensive substantive tests Sacrificed Effect iveness of the audit because it may lead to inappropriate opinion due to inappropriate less extensive substantive tests Efficiency of the audit because of unnecessar y additional wor k Risk of incorrect rejection Risk of assessing control risk too low (risk of over reliance) Risk of assessing control risk too high (risk of under reliance) Additional wor k (performance of unnecessary more extensive substantive tests) Performance of tests of controls and less extensive substantive tests Additional wor k (because non-performance of tests of controls would lead to the per formance of unnecessary more extensive substantive tests) ↑ CR than actual CR – internal control is not reliable Effect iveness of the audit because it may lead to inappropriate opinion due to inappropriate less extensive substantive tests Efficiency of the audit because of unnecessar y additional wor k 2. testing a single sample)  It is used when the auditor wishes to estimate a true but unknow n population deviation rate. Attribute sampling – the method used to estimate the rate (%) of occurrence (or exception) of a specific characteristic or attribute  Attribute sampling used in tests of controls. Discovery sampling – a special type of attribute sampling appropriate w hen the auditor believes the expected population deviation rate is zero or near zero and when the auditor’s objective is to find at least one deviation in the sample if actual population deviation rate AT – Audit Sampling Red Sirug Page 5 .  Attribute sampling generally deals with yes/no questions.e.  In attribute sampling. to assure recorded hours were worked)?". b. samples taken to test the operating effectiveness of controls are intended to provide a basis for the auditor to conclude w hether the controls are being applied as prescribed. Non-sampling risk is always present and cannot be measured. whe n the rate of error in the population is. failure by the auditor to recognize a misstatement or deviation in documents examined)  Non-sampling risk pertains to all aspects of audit risk that are not due to sampling.. or "Are invoices properly voided (e.   Sampling r isk and non-sampling risk can affect the components of audit r isk. when performing tests of control.g.

the auditor can be 95% certain that the rate of deviation in the population does not exceed 1%.g.  Classical variables sampling measures sampling risk by using the variation of the underlying characteristic of interest.g. the auditor decides whether to stop or to go on to the next step. 6. 1%). 95%) and the maximum acceptable tolerable rate (e.  Difference estimation is used instead of ratio estimation when the differences are not nearly proportional to book values.  PPS is only useful for tests of overstatements (for example. 4.. Mean. the entire account (containing that peso) is audited. The auditor predeter mines the desired reliability (confidence) level (e. it is not appropriate for testing liabilities because understatement is the primary audit consideration. a regular attribute sampling ta ble may be used to estimate the deviation rate in the population.g. May result in a smaller sample size if there are many differences between audited and book values 2. 3. Variables sampling – method used in reaching a conclusion in peso amounts  Variables sampling is used in substantive tests.  It is used when the auditor is looking for a very critical characteristic or deviations (e. T hus. In each step. 1. After a step. MPU does not require the book value of the population to estimate true population value. Stop-or-go sampling (sequent ial sampling) – is designed to avoid oversampling for attributes by allowing the auditor to stop an audit test before completing all steps  It is used when the auditor expects zero or ver y few deviations in the population. Compar ison of PPS sampling to classical var iables sampling Advantages of PPS sampling Generally easier to use Size of sample not based on variation of audited amounts Automatically results in a stratified sample Individually significant items are automatically identified Usually results in a smaller sample size if no misstatements are expected Can be easily designed and sample selection can begin before the complete population is available Advantages of classical var iables sampling 1. Easier to expand sample size if that becomes necessary 3.  PPS uses a peso as a sampling unit.per-unit estimation – a sampling plan that uses the average value of the items in the sample to estimate the true population value by multiplying average sample value by the number of items in population. and audit procedures may need to be expanded.c... accounts receivable balance)  The objective of variables sampling is to obtain evidence about the reasonableness of monetar y amounts. 2. 3. If deviations are found. Inclusion of negative balances does not require special sample design considerations b. such as a peso value (e. Once a peso is selected. Ratio est imat ion – a sampling plan that uses the ratio of the audited (correct) values/amount to their book values to project the tr ue population value and an allowance for sampling risk  Ratio estimation is a highly efficient technique when the calculated audit amounts are approximately proportional to the client's book amounts. Steps in Sampling for Substant ive Testing (Var iables sampling) 1. exceeds or equal a predetermined critical rate (tolerable deviation rate)  Discover y sampling should be used to estimate w hether a population co ntains critical deviations. Selection of zero balances does not require special sample design considerations 4. 2. 2. Deter mine the objective of the test AT – Audit Sampling Red Sirug Page 6 . 5. fraud). and a table is then used to determine sample size. Probability-proportional-to-size (PPS) sampling – sampling technique where the sampling unit is defined as an individual peso in a population  PS is a sampling plan that automatically stratifies the population. Difference estimation – a sampling plan that uses the average difference between the audited (correct) values of items and their book values to project the actual population value. of assets). the auditor determines if it is warranted to accept or increase the preliminary level of contr ol risk. If no deviations are found in the sample..  It separates the sampling process into several states or steps. a.g. Classical variables sampling – a statistical sampling method used to estimate the numerical measurement of a population. The auditor estimates the true value of the population by computing a point estimate of the population and computing a precision inter val around this point estimate. Three commonly used classical variables sampling: 1.

the population might consist of 5. an appropriate s ample would consist of individual account balances. that is. 4. The lower the total error that the auditor is willing to accept. The auditor would examine 100% of acc ounts for w hich potential errors could equal or exceed the tolerable error and w ould exclude those accounts from the population to be sampled.000 accounts is a sampling unit. of the population) Summary of relationships between the Increases in Effect on sample size Risk of incorrect Decrease acceptance Risk of incorrect Decrease rejection Tolerable Decrease misstatement (error) Expected Increase misstatement (error) above factors and the sample size: Explanat ion     This is a sampling risk and sampling risk is reduced by increasing the sample size.. In the same example. AT – Audit Sampling Red Sirug Page 7 . For example. 3. Confirmations could then be used to determine the audited values for sample items. This is a sampling risk and sampling risk is reduced by increasing the sample size. frequency. or variability. Variation in the population (standar d deviation) Increase in auditor’s assessment of control risk or inherent risk Reliance on other substantive procedures Increase  Increase  Decrease  Number of items in the population Negligible effect  5. the less assurance the auditor will require from sampling and. Evaluate the sample results: This includes the following procedure: 7. In other wor ds. The more the auditor intends to rely on other substantive procedures to reduce to an acceptable level the detection risk. Variation within the population (e. The objective of the test must be to satisfy an audit objective pertaining to a particular account balanc e. The number of items in the population virtually has no effect on sample size unless the population is very small. to test the reasonableness of a recor ded account balance. etc. If statistical sampling is used. the larger the sample size needs to be in order to make a reasonable estimate of the actual amount of error in the population.000 accounts with a recorded book value of P4.g. either probabilityproportional-to-size sampling (PPS) or classical variables techniques may be selected. Deter mine the sample selection method  Generally random number or systematic sampling. population size is not an issue provided the population is large. each of the 5. Tolerable error (tolerable misstatement) – maximum amount of errors (or monetar y misstatement) that may exist without causing the account balance or class of transactions to be materially misstated (or maximum amount of error that the auditor is willing to accept) d. The greater the expected amount of error in the population. Increases in variation (standard deviation in classical sampling) result in increases in sample size.500. Acceptable risk of incorrect acceptance b. Perfor m the sampling plan  Sample items should be selected in such a way that the sample can be expected to be representative of the population (e. the auditor wishes to estimate the value of the client's accounts receivable balance to satisfy valuation audit objective. Expected error/misstatement (size.  The auditor should consider the completeness of the population in defining the sampling unit. the smaller the sample size can be. For example. random sampling). For example..000. Deter mine the sample size  Factors to consider in determining sample size for substantive tests of details: a.g. The higher the auditor’s assessment of inherent risk and control risk. Define the populat ion and the sampling unit  This is to provide assurance that the audit sample to be selected and examined will satisfy the objective of the test. 2. Acceptable risk of incorrect rejection c. 6.) e. Select an appropr iate audit sampling technique  Select either non-statistical or statistical sampling. therefore. an estimate of the standard deviation. the larger the sample size needs to be. the lar ger the sample size needs to be.

etc. The projected misstatement is applied to the recorded balance to obtain a "point estimate" of the true balance.e. Document the sampling procedure The auditor must document each step in audit sampling as well as the basis for overall conclusions. Deter mine the sample selection method Pr incipal sample select ion methods: Appropriate sample selection methods could reduce sampling risk. Define the objectives of the test  Tests of controls are designed to test the operating effectiveness of controls. For example. are "lost") will depend on their effect on the auditor's evaluation of the sample. the point estimate +/. c.g. MPU. 4.a. either accepting a materially misstated balance.  This is a sampling risk and sampling risk is reduced by increasing the sample size. Considering sampling risk. the population is the class of transactions being tested. the book value is fairly stated. the auditor determines whether the recorded book value falls within the acceptable range (i. 8. the lower the auditor’s assessment of control risk will be. If so. the lar ger the sample size needs to be. 2. difference. population size is not an issue provided the population is large.the allowance for sampling risk).  If the sample is representative of the population.g. The auditor must then add an allowance for sampling risk (sometimes called a "precision interval") to this estimate.. Considering qualitative information Reaching an overall conclusion  In deciding whether to accept the client's book value. the larger the sample size needs to be so as to be in a position to make a reasonable estimate of the actual rate of deviation. a paid but uncanceled voucher would constitute a deviation. Tolerable deviation Decrease  The lower the rate of deviation that the auditor is rate willing to accept. the auditor might test controls for billing systems.  If the sample is not representative of the population. 3. i f the prescribed procedure to be tested requires the cancellation of each paid voucher. AT – Audit Sampling Red Sirug Page 8 . For example. and the larger the sample size will need to be. Risk of assessing control risk too low – inverse relationship with the sample size b. Define the populat ion  For tests of controls.. Number of items in Negligible  The number of items in the population virtually has no the population effect effect on sample size unless the population is ver y small.). The auditor projects the misstatements found in the sample to the population using one of several methods (e. 5. In other words. Define the attribute and dev iation condit ions  An attribute (or characteristic) would indicate operation of the inter nal control procedures. Projecting the sample error. or rejecting a fairly stated balance.. ratio. Tolerable deviation rate – inverse relationship with the sample size c. Expected population deviation rate – direct relationship with the sample size Summary of relationships between the above factors and the sample size: Increases in Effect on Explanat ion sample size Risk of assessing Decrease  The more assurance the auditor intends to obtain control risk too low from internal controls. Expected population Increase  The higher the rate of deviation that the auditor deviation rate expects. the auditor generally will make a correct decision regarding w hether the account balance is fairly stated.  The auditor's treatment of items selected for sampling that cannot be located (e. Conclusions based on sample results can be projected only to the population from which the sample was selected. Steps in Sampling for Tests of Controls (Attribute sampling) 1. the auditor will make an incorrect decision. b. Deter mine the sample size  The sample size is determined by considering the following factors: a.  A deviation is a departure from the prescribed internal control policy or procedure. d.

Consider qualitative consideration (such as the nature of each deviation. but different characteristics from items elsew here in the population. allowance for sampling risk (achieved precision)  The maximum dev iation rate is based on the sample size and the number of deviations discovered. reassessment of risk is necessar y. The auditor uses standard tables that yield maximum population de viation rates at specified risk of assessing control risk too low.  The stronger the internal control. the population size for the sampling application would be 900. c. Value-weighted selection – sets the high-value items as priority to be included in the sample Perfor m the sampling plan  The sampling units selected should be examined for the attributes or quality characteristics of interest and deviations should be documented in the wor king papers. Systemat ic select ion – the number of sampling units in the population is divided by the sample size to give a sampling interval regar dless of the amount involved (for example 50. the lower the control risk. d.number sampling – this method uses of a computerized random number generator or random number tables  Each item in the population has an equal chance and nonzero probability of selection. Determine the maximum population dev iation rate (achieved upper dev iation rate) and the 7. the auditor can continue using his planned assessment of control risk. it involves subdiving a population into subpopulations or strata For example. although may be useful for non-statistical sampling.  This method will enable the auditor to direct his efforts towards the items he considers he would potentially contain the greater monetar y error. Stratificat ion – grouping of items of similar size and each group is treated as a separate population. or always choosing or avoiding the first or last entries on a page) and thus attempt to ensure that all items in the population have a chance of selection  Haphazard selection. Block select ion – involves selecting a block(s) of contiguous items from within the population  Block selection cannot ordinarily be used in audit sampling because most populations are structured such that items in a sequence can be expected to have similar characteristics to each other.000 items are stratified into two groups: the 100 largest items will all be examined individually. If it happens to be greater than expected. each 50 th sampling unit thereafter is selected)  It involves selecting every nth item from a population of sequentially ordered items. 6. is not appropriate when using statistical sampling. assume 1.  The primary objective of using stratification as a sampling method is to decrease the effect of variance or variability of items in the total population. Determine the sample dev iat ion rate = Number of deviations obser ved Sample size b.a. but the method is intended to avoid or predictability (for example avoiding difficult to locate items.  Stratification is used when there is a wide range (variability) in the monetary size of items in the population.  It is useful for non-statistical sampling. although it can also be useful for statistical plan if the starting point is selected at random. Usually. Random. not 1. b. the lower the tolerable deviation rate. and probable cause) Reach an overall conclusion  The overall conclusion relates to assessing control risk after considering all available quantitative and qualitative information. an increase in such should be made.  Allowance for sampling risk = Maximum deviation rate – Sample deviation rate  When the deviation in the sample is at the expected deviation rate or less. and having determined a starting point within the first 50. Haphazard select ion – the auditor selects the sample without following a str uctured technique.  The auditor need to determine that the sampling units within the population are not structured in such a way that the sampling interval corresponds with a particular patter n in the population. In this case. its importance. but sampling techniques will be applied to the remaining 900 items. c.  It often results to excessively high sampling risk. AT – Audit Sampling Red Sirug Page 9 . Evaluate and document results: These include the following: a. f. d.  It is appropriate both for statistical and non-statistical sampling. e.000.