Sampling Methods

a. Random Sampling
-done by selecting randomly a sample from a group of population in
such a way that every item in the population has a similar chance of
being selected.

b. Systematic Sampling
-in this method, the auditor selects samples from a population through
sampling intervals. It can also be based on certain number of items
(Ex. Every 25th voucher)

c. Stratified Random Sampling

-this is used to diminish the cumbersome work of gathering samples
specifically for highly variable populations. (Ex. 2,000 items in A/R, the
discrepancy is very high, the auditor groups the A/R into
subpopulations of probably in terms of amount or nature then draws
samples from these subs)

d. Sampling with Probability Proportional to Size

-the method that is emphasized on peso-amounts. Meaning, the
probability of an item being selected from the population is connected
with its balance. Effective in detecting overstatements/misstatements.
(Ex. A P10,000 peso A/R File is two times more probable to be picked
rather than a P5,000)

Sample Size
Legends:
SS- Sample Size
ASR- Allowance for Sampling Risk
SR- Sampling Risk
RELATIONSHIPS:
If SS=Small, then there can never be a small SR if theres no high ASR.
If SS then SR and ASR
SS is also affected by 3 characteristics of a population
If Pop then SS with a specified ASR and SR should
Evaluation of Sample Results

Analyze any error detected in the sample

Project the errors found in the sample to the population and,
Asses the sampling risk

Analysis of Errors in the Sample

-Analyze the errors in accordance with the design of your sample (Ex. If your
objective is to assess the total balance of A/R, then its inappropriate to consider it
an error if the situation is misposting between customer accounts.)
-When documentation support for specific sample items (A/R File) cannot be
retrieved, the auditor can perform other procedures to compensate the missing
evidence. (Ex. If theres a positive information regarding a customers A/R with no
objections the auditor may have obtained the appropriate evidence in connection
with the validity of the A/R by reviewing the subsequent payments from the
customer).
-The auditor should also consider the aftermath effects of the error. (Ex. An
invalid customer A/R thats been existing for too long can prove that the internal
control specifically the A/R File Clerk is weak or inefficient)
-In assessing the errors discovered the auditor may conclude that many have
a common feature (Ex. Type of transaction). In such circumstance, the auditor may
produce sub-populations and perform separate evaluations for each.

Projection of Errors
-The method of projecting should be consistent with the method used to
select the sampling unit.
-When there is stratification in the population, there should be separate
projections for each stratum.

Asses the Sampling Risk

-The auditor should consider whether errors in the population might exceed
the tolerable error. To accomplish this he should:
Projection Population Error vs. Tolerable Error
Sample Results vs. Evidence obtained from other procedures
-As the PPE approaches the TE the risk of incorrect acceptance increases.
 -The auditor therefore should reconsider the Sampling Risk and if he finds it
unacceptable, he should extend his audit procedures.

Audit Sampling Plans for Tests of Control

a. Attributes Sampling Plan

-used to test an entitys rate of deviation from a prescribed control
procedure.
-auditors look for the presence/absence of a control condition
-Ex. ASP for Billing Systems, Disbursement Processing

b. Regular or Classical
-enables the auditor to estimate the rate of deviation of certain
characteristics in a pop.
-Ex. Percentage of Cash Disbursements processed during the year

c. Discovery Sampling
-method designed to locate at least one deviation in the population.
-an important use is to locate examples of suspected fraud
-Ex. An auditor attempts to locate a fraudulent cash disbursement

d. Sequential (Stop or Go) Sampling

-a sample is selected in several steps, with each step being crucial for
the acceptance or rejection of the sample.
-Ex. An auditor inspects monthly the production department, in terms
of its activities.
Eto na yung start ng Chapter
19 ko

Step 6: Determine the initial sample size

Three major factors:
a. The risk of assessing control risk too low (overreliance)
-the auditor will conclude based on the sample that the true deviation
rate is lower than the tolerable rate. While in fact, its in reverse.

b. The tolerable deviation rate

-the maximum deviation rate for a specific control the auditor can
permit without affecting the control risk.

c. The expected population deviation rate

-the frequency in which the control being tested does not function as
designed.

*The population can also affect the sample size but only if the population size is
very small*

Risk of Overreliance Req. initial sample

Tolerable Devi Rate Req. initial sample
Expect. Pop Rate Req. initial sample
Population Req. initial sample (If pop is small)

Step 7: Select the Sample

-after determining the initial sample size, the auditor should select a
sampling method to be performed from the population.

Step 8: Perform the tests of control procedures on sampling items

 -examine the sample item for deviations from the prescribed internal
procedure
-Ex. Observing the pattern of disbursements cycle
-The auditor should also be alert for unusual matters such as fraud.

Step 9: Evaluate the sample results

-Determine the sample deviation rate
=Number of Deviations Observed/Sample Size

-Determine the upper deviation rate and the allowance for sampling risk by
using the ff. relationship.
=Upper Dev Rate = Sample Dev Rate + Allowance for Sampling Risk

-Compare Upper Dev Rate and the Tolerable Rate and evaluate the
effectiveness of int. control
a. Statistical Sampling Plan
If Upper Dev <= Tolerable Dev
Control is effective and assessed control risk will be below the maximum or
100%

If Upper Dev Rate > Tolerable Dev Rate

Control is ineffective and assessed Control risk is maximum or 100%

b. Nonstatistical

If Sampling Dev Rate <= Tolerable Rate or Expected Pop Dev Rate
Control is effective and control risk is below maximum
If Sampling Dev Rate > Tolerable Rate or Expected Pop Dev Rate
Control is not considered effective and control risk is at maximum

-Consider qualitative info such as evidence of deliberate manipulation of

internal control
-Reach an overall conclusion
Step 10: Document the Sampling procedures
Nonstatistical vs Statistical Sampling

In Nonstatistical its almost the same with the other, considering the risk of
assessing control risk too low, tolerable deviation rate etc. But it differ in
determining the sample size such that it already assesses the overreliance risk and
tolerable dev rate at that phase. These not need to be quantified. And also it differs
with evaluating result such that if not quantified, its up to the professional
judgement of the auditor who uses nonstatistical methods to determine if the
internal control is effective or not.