Variables Sampling

1. Determine the objectives of the test

2. Define "fair presentation" and "material mistatement"
3. Define the population
4. Choose an audit sampling approach/ technique
5. Determine the sample size and the sample selection met
hod.
6. Perform the Sampling Plan
7. Evaluate sample results.
8. Comply with documentation requirements.
control risk (or a decrease in reliance on
internal control)

An increase in the use of other substantive Decrease

procedures directed at the same financial
statements assertion

An increase in the auditors required confidence Increase

level (or conversely, a decrease in the risk that
the auditor will conclude that a material error
does not exist, when in fact it does- risk of
incorrect acceptance

An increase in the total error that the auditor is Decrease

willing to accept (tolerable error)

An increase in the amount of error the auditor Increase

expects to find in the population(expected
error)

Stratification of the population when Decrease

appropriate

The number of sampling units in the Negligible Effect

population
1. The auditors assessment of the risk of material misstatement
• The higher the auditors assessment of the risk of material misstatement, the ar
ger the sample size needs to be.
2. The use of other substantive procedures directed at the same assertion
• The more the auditor is relying on the other substantive procedures the less as
surance the auditor will require from sampling and therefore the smaller the sa
mple size can be.
3. The auditors required confidence level.
The greater the degree of confidence that the auditor requires that the results o
f the sample are in fact indicative of the actual amount of error in the population
, the larger the sample size needs to be.
4. The total error the auditor is willing to accept ( tolerable error)
The lower the total error that the auditor is wiling to accept, the larger the samp
le size needs to be
5. The amount of error the auditor expects to find in the population (expected
error) The greater the amount of error the editor expects to find in the populati
on, the larger the sample size needs to be in order to make a reasonable estimat
e of the actual amount of error in the population.
6. Stratification When there is a wide range (variability) in the monetary size of it
ems in the populations. It may be useful to group items of similar size into seper
ate sub populations or strata
7. The number of sampling units in the population For large population, the act
ual size of the population has little, if any effect on sample size
 Nature and Cause of Errors
When performing test of controls, the auditor is primarily
concerned with obtaining audit evidence that controls ope
rated effectively throughout the period of reliance. This in
cludes obtaining audit evidence about how controls were
applied at relevant times during the period under audit, th
e consistency with which they were applied, and by whom
or by what means the were applied.
a. The direct effect of identified errors on the financial stat
ements ;and
b. The effectiveness of internal control and their effect on
the audit approach