I. mm. ANNEX 1 Republic of the Philippines COMMISSION ON AUDIT Commonwealth Avenue, Quezon City, Philippines ‘COMMISSION ON AUDIT (COA) POLICY ON AUDIT SAMPLING RATIONALE The COA adopted the International Standards of Supreme Audit Institutions (ISSAD 2500 — Audit Evidence, and ISSAI 2530 — Audit Sampling by virtue of COA Resolution No. 2014-011 dated May 7, 2014. Said ISSAIs provide that aside from the 100% examination of all items and specific items, audit sampling is one of the means available in selecting items for testing to obtain audit evidence. Audit sampling may be performed in test of controls and test of details (substantive test) whenever deemed appropriate. With the adoption of the aforementioned ISSAls, the guidelines provided under COA Resolution No. 95-505 dated July 4, 1995, Re-Statement with Amendments of COA Memorandum No, 93-316D Prescribing the Application of the Test Audit Scheme (TAS) and the Simplified Sampling Scheme (SSS) in the Audit of Current and Prior Years Transactions and Accounts of National and Local Government Agencies and Government Owned and/or Controlled Corporations, can no longer be applied. Thus, COA adopted the Guidelines on Audit Sampling which is aligned with ISSAIs 2500 and 2530, and other pertinent ISSAls, to be applied by audit teams in obtaining audit evidence in the conduct of financial audit. OBJECTIVE The COA Audit Sampling Guidelines (Annex 2) seeks to harmonize audit sampling procedures with ISSAI 2500 — Audit Evidence, ISSAT 2530 — Audit Sampling, other pertinent ISSAIs and policies of COA in the conduct of financial audit and to comply with the requirements of Section 172 of ISSAI 4000 - Compliance Audit Standard. COVERAGE This set of guidelines applies to test of controls and test of details on all financial audit engagements of the Commission. Whenever applicable, the provisions of the guidelines pertaining to test of controls and sample selection methods may also (7 be used by auditors in conducting compliance audit. Page 1 of 4Iv. DEFINITION OF TERMS ‘The terms used in the guidelines are defined as follows A. Audit Sampling - is the application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population (ISSAI 2530.5(a)). B. Test of Controls — is an audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level (ISSAI 2330.4(b)). C. Substantive Procedure — is an audit procedure designed to detect material misstatements at the assertion level. Substantive procedures comprise: i, Test of details (of classes of transactions, account balances, and disclosures); and ii, Substantive analytical procedure (ISAT 2330.4(a)). ROLES AND RESPONSIBILITIES The roles and responsibilities of the Directors, Audit Team Leaders (ATLs) and Audit Team Members (ATMs) pertaining to the use of the herein prescribed audit sampling methodology are defined as follows: A. Cluster Director/Regional Director/Director in Special Services Sector 1. The Directors in Clusters, Regional Offices, and Special Services Sector shall issue a memorandum on Random Numbers Start (RNS) for the audit teams under their jurisdiction five working days prior to the start of every quarter. B. Supervising Auditor 1, The Supervising Auditor shall approve the Audit Sampling Working Papers for Test of Controls and Test of Details (including the Sampling Plan and Results). C. Audit Team Leader 1. The ATL shall exercise technical supervision on ATMs in the use of audit 7 sampling procedures. Page 2 of 42. The ATL shall determine the confidence level to be used in accordance with Item No. 2, Part I-General Guidelines of the herein guidelines before the sampling procedure is performed. 3. The ATL shall review the Audit Sampling Working Papers for Test of Controls and Test of Details (including the Sampling Plan and Results) and shall submit the same to the Supervising Auditor for approval. D. Audit Team Member 1. The ATMs shall use the herein prescribed audit sampling methodology if audit sampling is found to be the most appropriate means of selecting items for testing that is effective in meeting the purpose of the audit procedure. 2. The ATMs shall prepare the Audit Sampling Working Papers for Test of Controls and Test of Details (including the Sampling Plan and Results) and other supporting working papers and submit the same to the ATL for review. VI. SPECIFIC GUIDELINES The specific sampling guidelines for Test of Controls and Test of Details, and specific guidelines for sample selection methods are outlined hereunder: A. Sampling procedures for Test of Controls Use the Audit Sampling Working Paper ~ Test of Controls as documentation Define specific risk controls Define the objective in testing the specific risk control Define what constitutes a deviation Describe the population to be tested Determine the sample size Choose a sample selection method Perform the test on the sample and conclude on the operating effectiveness of the control er avaeye B. Sampling procedures for Test of Details Use Audit Sampling Working Paper — Test of Details as documentation Identify test objective Define what constitutes a misstatement Describe the population Divide the total population Compute the sample size Choose a sample selection method Aaya Page 3 of 48. Identify errors on specific items 9. Identify errors on adjusted population 10. Identify an isolated or anomalous misstatement 11, Project misstatement on the adjusted population 12, Determine if the sampling provided a reasonable basis for conclusions about the population that has been tested 13, Aggregate the misstatements and compare with materiality C. Sample selection methods Random Sampling Systematic Sampling Monetary Unit Sampling Test Audit Day Scheme Pepe VII. DOCUMENTATION Audit sampling procedures employed shall be documented using the working papers prescribed in the guidelines. Vill. AMENDMENTS Changes and amendments, if any, will be communicated accordingly and amendments will be made to the policy and the guidelines. 1X. EFFECTIVITY This COA Policy on Audit Sampling shall take effect for audits to be conducted in 2021 onwards. MICHAEL 7AGUINALDO n ROLAND C. PONDOC Commissioner Page 4 of 4