AUDIT SAMPLING NON-SAMPLING RISK
The professional standards require the auditor to obtain sufficient
appropriate evidence to be able to draw reasonable conclusions on
which to base the audit opinion. In forming the opinion on the
financial statements, the auditor does not normally examine all
evidence available. Auditor usually draw conclusions about the
account balance or transaction class by examining only a Sample of
evidence.
Under PSA 530 defines AUDIT SAMPLING as,
“The application of audit procedures to less of the items within an
account balance or class of transactions such that all sampling units
have a chance of selection”
Audit sampling is performed on the assumption that the sample
selected for testing is representative of the population. Thus, an
inference or conclusion can be drawn about the characteristics of
the population based on the sample results.
Not all testing procedures performed by auditors involve audit
sampling. For example,
The auditor may decide that it would be more appropriate to
examine the entire population (100% examination) of items that
make up an account balance since the population constitutes a small
number of large value items.
Regardless of the approach used, the auditor needs to be satisfied
that sufficient appropriate evidence is obtained to meet the
objectives of the test.
 RISK IN SAMPLING
When performing audit procedures, the auditor is faced with an
uncertainty of not detecting material errors in an account balance or
class of transactions. This uncertainty arises because of sampling and
non-sampling risks.
SAMPLING RISK
Sampling risk refers to 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 procedures.
This exist because the sample selected for testing may not be truly
representative of a population.
Two types of sampling risk that could adversely affect the audit.
a. ALPHA RISK is the risk the auditor will conclude:
 In the case of test of control, that internal
control is not reliable when in fact it is effective
and can be relied upon (risk of under reliance);
or
 In the case of substantive test, that material
misstatement exists in an account balance or
transaction class when in fact such misstatement
does not exist (risk of incorrect rejection).
This type of sampling risk results in an auditor
preforming audit procedures more than what is
necessary, thus affecting audit efficiency.
b. BETA RISK is the risk the auditor will conclude,
 in the case of test of control, that the internal
control is reliable when in fact it is not effective
and cannot be relied upon (risk of over
reliance); or
 in the case of substantive test, the material
misstatement does not exist when in fact
material misstatement does exist (risk of
incorrect acceptance).
This type of sampling risk results in an auditor
performing audit procedures less than what is
necessary, hereby affecting the auditor’s ability to
detect material misstatements in the financial
statements. Hence, beta risk affects the audit
effectiveness.
Non-sampling risk refers to the risk that the auditor may draw
incorrect conclusions about the account balance or class of
transactions because of human errors such as, application of
inappropriate audit procedures, failure to recognize errors in the
sample tested, and misinterpretations of evidence obtained. This
includes all aspects of audit risk that are not due to sampling.
 CONTROLLING THE RISKS
Accordingly, auditors do not normally attempt to eliminate
sampling risk. Instead, auditors control sampling risk by
 Increasing the sample size; and
 Using an appropriate sample selection method.
Non-sampling risk, on the other hand, is something that
cannot be eliminated even if the auditor examines the entire
population. This risk, however, can be minimized by
 Proper planning; and
 Adequate direction, review, and supervision of the audit
team.
 GENERAL APPROACHES TO AUDIT SAMPLING
There are two sampling approaches that can be used by the
auditor to gather sufficient appropriate evidence;
Statistical sampling is a sampling approach that
 Uses random based selection of sample; and
 Uses statistics (law of probability) to measure
sampling risk and evaluate sample results.
Non-statistical sampling, in contrast, is a sampling
approach that purely uses auditor’s judgement in
estimating sampling size, and evaluating sample results.
Thus, statistical sampling helps the auditor to:
 Design an efficient sample;
 Measure the sufficiency of evidence obtained; and
 Objectively evaluate the sample results.
 AUDIT SAMPLING PLANS
Audit sampling may be used when performing tests of controls
or substantive tests. When statistical sampling is used, the
auditor may use either attribute or variable sampling plan.
ATTRIBUTE SAMPLING
This is a sampling plan used to estimate the frequency of
occurrence of a certain characteristic in a population
(occurrence rate). It is generally used when performing tests of
controls to estimate the rate of deviations from prescribed
internal control policies or procedures.
VARIABLE SAMPLING
This is a sampling plan used to estimate a numerical
measurement of a population such as peso value. It is generally
used in performing substantive tests to estimate the amount
of misstatements in the financial statements.
 BASIC STEPS IN AUDIT SAMPLING
Audit procedures carried out by means of sampling techniques
require consideration of at least the ff. basic steps.
6. EVALUATE THE RESULTS
5. APPLY THE PROCEDURES
4. SELECT THE SAMPLE
3. DETERMINE THE SAMPLE SIZE
2. DETERMINE THE PROCEDURE
1. DEFINE THE OBJECTIVE
 SAMPLING FOR TESTS OF CONTROLS
Audit sampling for tests of control is generally appropriate
when application of the control leaves evidence of
performance. For those controls that leave no documentary
evidence of performance, non-sampling procedures, such as
inquiries and observation, would be more appropriate.
DETERMINATION OF SAMPLE SIZE
There are three factors affecting the determination of
sample size for test of controls. These are the:
a. Acceptable sampling risk;
b. Tolerable deviation rate; and
c. Expected deviation rate
 Acceptable sampling risk
Sampling risk is inherent in an audit sampling
application. A sample drawn can only be expected
to be representative of the population.
 Tolerable deviation rate
Tolerable deviation rate is the maximum rate of
deviations the auditor is willing to accept, without
modifying the planned degree of reliance on the
 internal control. It requires professional judgement Projecting misstatements can be accomplished
and involves consideration of: using:
 The importance of the control; and a. Ratio estimation; or
 The degree of reliance to be placed on such control. b. Difference estimation
 Expected deviation rate Note that both methods basically follow the same formula:
Expected deviation rate is the rate of deviation rate the auditor Projected misstatement = amount of misstatements
expects to find in the population before testing begins. The auditor * (population size + sample size)
can develop this expectation based on the prior year’s results or by
examining few items in the population (pilot sample).
2. Compare the projected misstatements with the
Sample size Acceptable Tolerable Expected
tolerable misstatements and draw an overall
sampling deviation deviation
conclusion.
risk rate rate
if the projecting the sample misstatements is
Small High High Low
greater than the tolerable misstatements, the
Large Low Low high auditor will conclude that there is unacceptable
Sample selection method risk that the account balance is materially
The auditor should select items for the sample with the misstated. In this case, the auditor may:
expectation that all sampling units in the population  Examine additional sample;
have a chance of selection. PSA 530 has identified three  Perform suitable alternative procedures; or
principal methods of selecting samples namely, (a)  Request the client to adjust the account
random number selection, (b) systematic selection, balance.
and (c) haphazard selection.
In selecting the sample and applying the appropriate audit
procedures, the auditor may encounter the following
situations.
 Voided documents
 Missing documents
Evaluation of results
When evaluating sample results, both the qualitative
and the quantitative factors of deviations should be
considered. Here are some general guidelines that may
be used when evaluating sample results foe tests of
controls.
1. Determine the sample deviation rate
2. Compare the sample deviation rate with the
tolerable deviation rate and draw an overall
conclusion about the population.
 The sample deviation rate exceeds the
tolerable deviation rate.
 The sample deviation rate is less than the
tolerable deviation rate.
Other Sampling Application for Test of Controls (OSATC)
 Sequential Sampling
Sequential sampling can be used as an
alternative form of testing control when an
auditor expects very few deviations within the
population.
 Discovery Sampling
This form of attribute sampling is most
appropriate when no deviations are expected in
the population and therefor even one deviation
would cause concern. This is normally used when
the auditor suspects that an irregularity might
have been committed.
 Sampling for substantive Tests
Substantive tests are concerned with the amount reported in
the financial statements and are of two types; substantive
analytical procedures and tests of details. Substantive
analytical procedures are performed by comparing the
financial statements with the auditor’s expectations and these
procedures do not involve sampling.
Determination of sample size
When determining sample size for substantive test, the
following factors must be considered
1. Acceptable sampling risk
2. Tolerable misstatement
3. Expected misstatement
4. Variation in the population
Sample Selection Method
 Stratified sampling
Stratification is the process of dividing a
population into sub-populations, each of which is
a group of sampling unit which have similar
characteristics
 Value weighted selection
Value weighted selection also allows each item
in the population to have an opportunity to be
selected. This is the reason why this type of
sampling is sometimes called probability
proportional to size sampling.
Evaluating the results
Evaluating sample results for substantive tests will involve
the ff. steps:
1. Project the misstatements to the population