Audit Sampling

Sampling for test of Control

Substantive test sampling

Used to address sufficient audit

evidence
When the application of 100% testing is
not feasible or efficient

Sampling is the application of an audit

procedure to less than 100 percent of
the items within an account balance or
class of transaction for the purpose of
evaluating some characteristics of the
entire balance or class

The risk the auditors conclusions

reached from a sample maybe different
from the conclusions he/she reached if
the test were applied to the whole
population

3 Factors affecting the determination of

sample size:

The desired level of assurance in the

results ( confidence level)
Acceptable defect rate ( tolerable error /
materiality level )
The historical defect rate (expected error)

Confidence level is the complement of

sampling risk

If the auditor set sampling risk for a

particular sampling application at 5
percent, it will result to a confidence level
of 95 percent

Once the desired confidence level is

established, the sample size is
determine largely by how much the
tolerable error exceeds the expected
error

Once the desired confidence level is

establiched, the sample size is
determine largely by how much the
tolerable error exceeds the expected
error

TYPES OF EVIDENCE

Inspection of tangible
assets
Inspection of records
Reperformance
Recalculation
Confirmation
Analytical procedure
Scanning
Inquiry
observation

AUDIT SAMPLING USED ?

Y
Y
Y
Y
Y
Y
Y
Y
Y

/
/
/
/
/
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N
N
N
N
N
N
N
N
N

Testing all items with a particular

characteristics

Population is made up with a few larger items

Qualitative factors
large items
E.g: choose journal entries posted by finance
Director For fraud testing over journal
entries

Applicable for highly automated

information systems process
transactions consistently unless the
systm or porgrams are changed

The auditor may test the general

controls over the system and any
program changes, but test only few
transactons processed by the IT system

Nonstatistical ( judgemental )
Audtor does not use statistical technoques to determine
sample size, select the sample items or measure sampling
risk
Statistical
use the law of probability to compute sample size and
evaluate the sample results
Attribute sampling
Monetary unit sampling
classical variable sampling

Attribute sampling

Used to estimate the proportion of a population

that possess a specific characteristics.
Commonly used in test for controls

Monetary unit sampling

MUS uses attribute sampling theory to
estimate the dollar amount of misstatement
for a class of transaction or account balance

Classical variable sampling

Inference about the population based on

sample data
Used when we have assessed risk as high,
we expect more than a few errors and we
wish to estimate their potential monetary
effects

Risk of assessing control risk too low

The risk that the assessed level of control

risk based on the sample supports the
planned assessed level of control risk when
the true operating effectiveness of the
internal control, if known, would not be
considered adequate to support the
planned assessed level

Risk of assessing control risk too high

Steps:

Plan
Perform
Evaluate
Document

Determine test of objectives

Define the population characteristics
Define sampling population
Define sampling unit
Define the control deviation
Determine the sample test
The desired confidence level
The tolerable deviation rate

The expected population deviation rate

Select sample items:

Random number selection

Systematic selection

Perform the audit procedures

Voided document
Unused or inapplicable documents
Missing sample items

Calculate the sample deviation and

upper deviationr ate
Draw final conclusions

Determining the sample size

An auditing firm may establish a sampling

policy;i.e. low risk of failure took 15-20
samples, moderate took 25-35 samples, high
took 40-60 samples

Selecting sample items

Allows the use of random or systematics

selection but also permits oother method;
i.e haphazard sampling ( choose sample
without bias )

Calculating the upper deviation rate

Auditor can calculate the sample deviation

rate, but cannot quantify the computer
upper deviation rate and sampling risk
associated with the test

Risk of incorrect acceptance ( type 1)

The risk that sample supports the

conclusion that the recorded account
balance is not materially misstated when it
is materially misstated

Risk of incorrect rejection ( type 2 )

MUS uses attribute sampling theory to

estimate the percentage of monetary
units in a population that might be
misstated and then multiplies this
percentage by an estimate of how
much the dollars are misstated.
Commonly used for test of details

When the auditor expects no misttatemens,

MUS usually result in a smaller sample size
than classical variable sampling
The calculation of the sample size and
evaluation of the sample results are not b
ased on the variation between items in t
epopulation
Whenapplied using the probability to
proportional to size procedure, MUS
automatically results in a stratified sample

The selection of zero or negative balances

generally requires special design consideraton
The general approach to MUS assumes that
the audited amount of the sample item is not
in the error by more than 100%
When more than one or two misstatements
are detected, the sample results calculations
may overstate the allowance for sampling risk
MUS is not effective in detecting
understatements

The sampling unit for non statistical sampling

is normally a customer account, an individual
transaction or a line item on a transactions
When using non statistical sampling, the
following items must be considered
Identify individually significant items
Determining the sample size
Selecting sample items
Calculation the sample result

Uses normal distribution theory to

evaluate the characteristics of a
population based on sample data.
Auditors commonly use classical
variables sampling to estimate the size
of misstatement

When the auditors expect a large number of

differences between book and audited values
this method will result in smaller sample size
than MUS
The techniques are effective for both
overstatements and understatements
The selection of zero balance generally does
not require special sample design
considerations

To determine sample size, the auditor

must estimate the standard deviation
of audited value of differences
If few misstatements are detected in
the sample data, the true variance
tends to be underestimated, and the
resulting projection of the
misstatements to the population is
likely not to be reliable