Random Sampling

- The population has a same chance of being selected.

- Sample is selected completely at random

Systematic Sampling / Interval Sampling

- Draws every nth item in the population for inclusion in the sample with a random starting point
- Population / Sample size = interval (round down)

Stratified Sampling

- Divides the entire population into different subgroups for a greater homogeneity
- Reduces variability
- Each group is sampled separately
- Sampling 100% of the items in a group with the highest values will yield greater confidence.

Sample Size

- Must consider sampling risk is reduced to an acceptably low level

- Lower the risk, greater sample size is needed
- The need for more certainty increases, the size of the sample must also be increased to satisfy
the auditors professional need

Factors that influence an auditor in determining sample size

- Materiality
o More audit testing for accounts that materially or significantly affect the financial
statement
- Quality of Internal Control
o Weaker the internal control, the greater the sample size needed
- Relative Risk
o Susceptibility of an account to error or irregularities

Evaluation of Sample Results

- Evaluate sample results to determine whether the preliminary assessment of the relevant
characteristics of the population is confirmed or needs to be revised
- Analyze any error detected in the sample
- Projects the error found in the sample to the population
- Assesses the sampling risk
- Consider the direct effect of identified errors on the financial statements
- Consider the effectiveness of the accounting and internal controls
o When the errors result from management override of an internal control
- Errors discovered to have common features
o Extend audit procedures to other items in the population that also possess the common
features
 - Anomalous Error
o Error arose from an isolated event that has not recurred other than on specifically
identifiable occasions
o Not representative of similar errors in the population.
o Performs additional work to obtain sufficient evidence that anomalous errors do not
affect the remaining part of the population
- Unexpectedly high sample rate in test controls
o May lead to an increase in the assessed level of control risk
- Unexpectedly high sample in substantive test
o May cause the auditor to believe that an account balance or class of transaction is
materially misstated
- Best estimated of error in the population
o Projected error + Anomalous error

Detailed Audit Sampling Pan

- A detailed sampling plan is described with theses sequential processes:

o Attribute Sampling is conducted for test of controls to comply with internal control
procedures:
Non-statistical sampling for internal control procedures that leaves no audit
paper trail
Statistical sampling for internal control procedures that leave an audit trail:
- Estimation sampling
- Discovery sampling
- Acceptance sampling
o Variable sampling is conducted for substantive procedures
Non-statistical sampling for substantive procedures that leave no audit paper
trial
Statistical sampling for substantive procedures that leave an audit trail
- Probability-proportional-to-size (PPS) sampling
- Classical variables sampling
a. Simple projection or blow-up method
b. Difference estimation
c. Ratio estimation

Audit Sampling for Tests of Controls

- AKA Attribute Sampling

- Compliance test to ascertain that entitys internal control procedures are properly complied
with
- May be Non-Statistical or Statistical Sampling
o Non-Statistical Sampling
 Subjective judgment for determining sample size
Applicable to internal control that leaves no audit trail
o Statistical sampling
Estimation Sampling
- Test the hypothesis that the error rate is less than some acceptable
degree of error and he test for the presence or absence of a control
condition
Discovery Sampling
- Adapted when intentional or unintentional errors are believed to be
remotely possible
- Population is accepted if zero errors are were discovered
- Population is rejected if any error is discovered
- Often used to locate a suspected fraud or fraudulent cash disbursement
Acceptance Sampling
- Acceptability of the population
- Based on predetermined values and expected error rates
- May accept or reject a group of items whose sample results differ from
expected
- The auditor seeks to balance out the sampling risk
a. Alpha risk
Correct figure would be erroneously rejected
b. Beta risk
Wrong figure would be erroneously accepted

Steps in the Application of Audit Sampling in Test of Controls

1.) Identify audit Objective and control to be tested

2.) Define the attribute and deviation condition/error
- Attribute provides evidence that internal control procedure exist
 - Deviation Condition occurs when sample items do not have one or more of the
identified characteristics
3.) Define the population and sampling risk
- Population is the entirety from the sample is drawn
- Sampling risk occurs when the control risk is estimated lower or higher than it actually is
4.) Determine the tolerable deviation rate and the risk of assessing control risk too low
- Consider the relationship between the planned assessed level of control risk and the
tolerable deviation rate
5.) Specify the expected population deviation rate
- Identify the rate of deviation expected in the sample from the population
6.) Determine the Sample size
- Consider the factors that affect sample size
7.) Select the sample
- Using statistical sampling method
8.) Perform compliance test on the sample items
- Examines of errors or deviation from the identified attributes
9.) Evaluate the sample results
- Quantifies the evaluation of sample results with the use of formulas and relationships
or comparisons
10.) Documentation of the results of attribute sampling for test of control
- Document indicates the following:
i. Client
ii. Audit date
iii. Date of sampling
iv. Objective of test
v. Population
vi. Sampling unit and selection procedure
vii. Planning parameters
viii. Sample results

Illustration of Attributes Sampling

Audit Objectives: To ascertain proper approval of cash disbursement

Control to be tested: Supporting documents cancelled or marked paid upon payment

Attribute: Pre-numbered Petty Cash Vouchers signed and approved for payment by
authorized personnel Deviation condition / error : PCVs without identified
characteristics or are not pre-numbered; approval signatory not indicated;
supporting documents not cancelled or stamped paid upon payment

Population: paid petty cash vouchers with supporting documents attached

Expected Population Deviation Rate: 6%

Sample size and sample selection process: Number of PCVs in sample;

select every nth PCVs (systematic sampling)

Compliance test conducted on the sample: Test for attributes on PCVs and supporting documents

Evaluate the Sample results

Conclusion: Low risk exist for the proper approval of petty cash disbursement

Note:
Tolerable deviation rate and Assessing control risk

Low control risk = 2%-7% Deviation rate

Moderate control risk = 6%-12% Deviation rate
Below Maximum control risk = 11%-20% Deviation rate

PSA 530 (Redrafted)

Requirements Sample Design, Size and Selection of Items for Test ing

6. When designing an audit sample, the auditor shall consider the purpose of the audit procedure and
the characteristics of the population from which the sample will be drawn.

(Ref: Para. A4-A9)

7. The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low
level.

(Ref: Para. A10-A11)

8. The auditor shall select items for the sample in such a way that each sampling unit in the population
has a chance of selection.

(Ref: Para. A12-A13)

Evaluating Results of Audit Sampling

15. The auditor shall evaluate:

(a) The results of the sample; and (Ref: Para. A21-A22)

(b) Whether the use of audit sampling has provided a reasonable basis for conclusions about the
population that has been tested.

(Ref: Para. A23)