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# Chapter 6

Audit sampling

but also because they are only looking for material misstatements. • Specific methods include: • Random Sampling. deliberately or otherwise. is called statistical sampling. Auditors are unlikely to examine every transaction. a computer may be used to select items to test. Any method involving random selection. Humans may introduce bias into the process. . and the use of probability theory to assess the results. To achieve true randomness.AUDIT SAMPLING (ISA 530) • Sample size. • Methods of selecting a sample. largely because it would be physically impossible. not every misstatement.

and then try to form an opinion about the population. This risk can be reduced by using a more experienced audit team. or by being more careful in the items selected. they need their samples to be representative of the overall population. • Non-sampling risk is the risk that the audit staff carrying out the test form the wrong opinion about the population. • Sampling Risk is the risk that the sample is not representative. The risk can be reduced by testing a greater number of items. even though the sample was representative. .Sampling risk and non-sampling risk • If auditors are only going to test a sample.

before a sample is then chosen. • It could be used to guarantee that some of each type of transaction is selected in a sample – e. • Extrapolation (Projection). and a sample is selected that totals \$1million. Extrapolation (Projection) is the process of taking the result of a sample and projecting up to the overall population. then 10% of the total has been tested. Stratification is the process where a population is broken down into pieces.000 are found in the sample. by breaking a population of sales invoices into those raised on each day of the week.000 … assuming the sample was representative! . 6 Tuesday invoices etc. If Sales total \$10million.Other sampling terms • Stratification.g. it could be suggested that the population has errors of \$370. a sample of 30 could be broken down into 6 Monday invoices. If errors totaling \$37.

the tolerable misstatement is the maximum monetary error that the auditor is willing to accept in an account balance or class of transactions. • In a test of control. However. • Often the tolerable deviation rate for controls testing is zero. they may sometimes accept up to two failures in a control and still deem the control to be strong. . if the auditor knows the client systems well and has confidence in them.2 • Tolerable errors (Tolerable deviation rate and tolerable error). • In a substantive test. the tolerable deviation rate is the maximum number of times that a control can fail before the auditor concludes that the control is weak and cannot be relied upon.