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09 Audit Sampling PDF
09 Audit Sampling PDF
AUDIT SAMPLING
(And Other Means of Test ing)
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.
Inapplicability of audit sampling: Situations w here audit sampling generally do not apply:
a. Risk assessment procedures performed to obtain an understanding of internal control.
b. Tests of automated application controls when effective general controls are present. (Generally,
such contr ols would only be tested once or a few times.)
c. Analyses of security and access contr ols, or other controls that do not provide documentar y
evidence of performance (e.g., controls related to segregation of duties).
d. Some tests related to the operation of the control environment or the accounting system (e.g.,
examination of the effectiveness of activities performed by those charged with governance).
2. 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. The sample
size is not determined mathematically. Auditors rely exclusively on subjective judgment to determine
sample size and to evaluate sample results.
A properly designed non-statistical sampling application can be as effective as statistical sampling
application.
One disadvantage is that it can misdirect an auditor to unreliable sampling units.
Sampling Risk:
Sampling risk – the possibility that the auditor’s conclusion, based on a sample may be different from the
conclusion reached if the entire population were subjected to the same audit procedure.
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.
The possibility that even though a sample is properly chosen, it may not be representative of the
population.
Sampling risk can be reduced by increasing the sample size.
Sampling risk is an inherent part of sampling tha t results from testing less than the entire population.
2. 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, 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. It refers to
the possibility that auditors will arrive at an erroneous conclusion not because of the chosen
sample but due to other factors.
Non-sampling risk is always present and cannot be measured.
Non-sampling risk can be controlled by adequate planning and super vision of audit wor k and
proper adherence to quality control standards.
Sampling r isk and non-sampling risk can affect the components of audit r isk. For
example, when performing tests of control, the auditor may find no errors in a sample and conclude
that control risk is low, whe n the rate of error in the population is, in fact, unacceptably high
(sampling risk). Or there may be errors in the sample which the auditor fails to recognize (non-
sampling risk).
Summary of relationships between the above factors and the sample size:
Increases in Effect on Explanat ion
sample size
Risk of incorrect Decrease This is a sampling risk and sampling risk is reduced by
acceptance increasing the sample size.
Risk of incorrect Decrease This is a sampling risk and sampling risk is reduced by
rejection increasing the sample size.
Tolerable Decrease The lower the total error that the auditor is willing to
misstatement (error) accept, the larger the sample size needs to be.
Expected Increase The greater the expected amount of error in the
misstatement (error) population, the larger the sample size needs to be in
order to make a reasonable estimate of the actual
amount of error in the population.
Variation in the Increase Increases in variation (standard deviation in classical
population (standar d sampling) result in increases in sample size.
deviation)
Increase in auditor’s Increase The higher the auditor’s assessment of inherent risk
assessment of control and control risk, the lar ger the sample size needs to be.
risk or inherent risk
Reliance on other Decrease The more the auditor intends to rely on other
substantive substantive procedures to reduce to an acceptable level
procedures the detection risk, the less assurance the auditor will
require from sampling and, therefore, the smaller the
sample size can be.
Number of items in Negligible effect The number of items in the population virtually has no
the population effect on sample size unless the population is very
small. In other wor ds, population size is not an issue
provided the population is large.
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, the lower the auditor’s
assessment of control risk will be, and the larger the
sample size will need to be.
This is a sampling risk and sampling risk is reduced by
increasing the sample size.
Tolerable deviation Decrease The lower the rate of deviation that the auditor is
rate willing to accept, the lar ger the sample size needs to
be.
Expected population Increase The higher the rate of deviation that the auditor
deviation rate expects, 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.
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. In other words, population size is not an issue
provided the population is large.