CPA-Audit 3-ver 3.

2-Sampling

Shradha Ghosh
 Sampling
Audit Sampling
– Objective-Obtain Sufficient Appropriate Audit
Evidence (SAAE)
– Meaning- is the testing of < 100% of the items
(within an account balance or class of
transactions) to evaluate some characteristic of
the balance or class
– Assumption is that the sample is representative of
the population.
– Example-BSE index S P
Shradha Ghosh
 Sampling Risk
(Inherent risk in sampling)
• Risk that the sample is NOT representative of
the population

AND

• That the auditor’s conclusion will be different

from the conclusion reached had the auditor
examined 100% of the population
Shradha Ghosh
 Sampling
• Rules

• Methods-Statistical vs. Non-statistical

• Types- Attribute Sampling (TOC) vs. Variables

Sampling (TOD)

• Types of risk-Sampling vs. Non sampling risk

Shradha Ghosh
 SAMPLING RISK

The auditor will fail to The auditor may falsely

identify an existing identify a problem where
problem OR none exists
(BETA RISK) (ALPHA RISK)
HOW? HOW?

Assessing Assessing
Incorrect O
Incorrect O control risk control risk too
R
Acceptance R too low Rejection high
(Overreliance) (Underreliance)

MAKES THE AUDIT INEFFECTIVE MAKES THE AUDIT INEFFICIENT

Variable √ √
Sampling
Attribute √ √
Sampling
Opinion Wrong (Auditor concern) Right
Work done Less than required More than required
Shradha Ghosh
Beta Risk (auditor’s main concern)
 Auditor’s usually accept a risk of 5% or 10%

 This means the confidence level is 95% or 90%

 i.e. the auditor is 95% (or 90%) confident that

the sample is representative of the population

 i.e. Risk of being ineffective + Confidence

level=100%
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 ATTRIBUTE SAMPLING VARIABLE SAMPLING/ESTIMATION SAMPLING
PURPOSE Estimate the rate (%) of Estimate the $ value of the population
occurrence or deviation of a
specific characteristic (attribute)

OBJECTIVE To test the operating To detect Material Misstatement in the FS’s [Test
effectiveness of controls [Test of of Details(TOD)]
Controls (TOC)]

METHODS Generally deals with YES/NO Computing a point estimate of a population and a
questions precision interval (allowance for sampling risk)
around this point estimate
PLANNING  Tolerable Deviation Rate (TDR)  Tolerable Misstatement
CONSIDERATION  Auditor’s allowable level of  The auditor’s allowable risk of incorrect
assessing control risk too low acceptance (confidence) [Beta risk]
[Beta risk]
FORMING UDR < TDR = Rely  Projected Misstatement < Tolerable
CONCLUSIONS UDR > TDR=Do not rely Misstatement = Accept
[UDR=Upper Deviation Rate Projected Misstatement > Tolerable
=Sample Deviation rate +
Misstatement = Deny
allowable sampling risk]
TDR= Tolerable Deviation Rate [Projected Misstatement=Point estimate +/-
precision level (allowance for sampling risk)]
Qualitative consideration=error/fraud

Shradha Ghosh
Thank you

Shradha Ghosh