Audit Sampling: ISA 530

(chapter 12)

Submitted to : Mr. Aamir

Submitted by : Muhammad Ammar Khalid

Roll no. 31
BS(A/F), 7th
 Audit Sampling: ISA 530

“When designing audit procedures the

auditor should determine appropriate
means for selecting items for testing so as
together audit evidence to meet the
objectives of audit tests.”
 The purpose of ISA 530 is:
‘To establish standards and provide
guidance on the design and selection of
an audit sample and the evaluation of
sample results. This ISA applies equally to
both statistical and non-statistical sampling
methods. Either method, when properly
applied, can provide sufficient appropriate
audit evidence.’
 Specific characteristics of items

The results of item selected from population cannot

be projected onto the whole population but may
be used in conjunction with other audit evidence
concerning the rest of the population.
• High value or key items.
• All items over a certain amount.
• Items to obtain information about the client’s
business, the nature of transactions, or the
client’s accounting and control systems.
• Items to test procedures, to see whether
particularly procedures are being performed.
 Design of the sample
‘When designing of an audit sample, the auditor
should consider the objectives, of the test and
the attributes of the population from which the
sample will be drawn.’

• Audit objectives
• Population
• Stratification
• Sample size
• Sampling risk
• Tolerable error
• Expected error
 Sample size
• In obtaining evidence, the auditor should
use professional judgement to access
audit risk and design audit procedures to
ensure this risk is reduced to an
acceptably low level.
• When determining the sample size, the
auditor should consider whether risk, is
reduced to an acceptably low level.
 Sampling risk
The auditors are faced with sampling risk in both
tests of control and substantive procedures, as
follows.
• Tests of control
• Risk of under-reliance
• Risk of over-reliance
• Substantive procedures
• Risk of incorrect rejection
• Risk of incorrect acceptance
 Tolerable error
Tolerable error is considered during the
planning stage and, for substantive
procedures, is related to the auditor’s
judgement about materiality. The smaller
the tolerable error, the greater the sample
size will be need to be.
 Expected error
Large samples will be required when errors are
expected than would be required if none were
expected, in order to conclude that the actual
error is less than the tolerable error.
• When considering expected error, the auditors
should consider:
• Errors identified in previous audits;
• Changes in the entity’s procedures;
• Evidence available from other procedures.
 Selection of Sample

‘The auditor should select items for sample

with the expectation that all sampling units
in the population have a chance of
selection.’
 Methods of selection

• Random selection
• Systematic selection
• Haphazard selection
• Sequence or block sampling.
 Analysis of errors in the sample
• Auditors must consider whether the items in
question are true errors.
• The auditors will perform alternative procedures
to obtain sufficient appropriate audit evidence
when expected audit evidence is not found.
• Qualitative aspects of errors should also be
considered.
• Where common features are discovered in
errors, the auditors may decide to identify all
items in the population which possess the
common feature.
• On some occasions the auditors may decide
that the errors are anomalous errors.
 Projection of errors
• The auditor should the error results from
the sample on to the relevant population.
The auditors will estimate the probable
error in the population by extrapolating
the errors found in the sample. Two
methods can be used.
• Ratio method
• Difference method
 Attribute sampling
• Attribute sampling is concerned with sampling
units which can only take one of two possible
values (say 0 or 1).
• It is generally used to provide information about
either the rate of occurrence of an event or of
certain characteristics in a population.
• It can thus be used to measure what proportion of
items in a population have a particular property
and what proportion of items do not have the
property.
• Attribute sampling deals only with the rates of
occurrence of events not monetary amounts and
is therefore primarily used in tests of control.
 Precision level

The precision level is the number of errors

the auditors are willing to accept in a
population to be assured that the
population is correct.
 Variable sampling
Variable sampling is concerned with sampling units
which can take value within a continuous range
of possible values and is used to provide
conclusions as to the monetary value of
population. The auditors can use it to:
• Estimate the value of population by extrapolating
statistically the value of representative sample of
items drawn from the population;
• Determine the accuracy of population that has
already been a value (generally described as
‘hypothesis testing’).
 Monetary unit sampling (MUS)
MUS has two main characteristics: items are
selected for testing by weighting the items
in proportion to their value and inferences
are drawn based on ‘attribute sampling’
concepts.
 Advantages of MUS
• MUS is generally easier to use than
variables sampling.
• MUS will stratify items by monetary
value.
• If the auditors expect to find few (if any)
errors in their sample, they will generally
obtain a lower sample size than they
would if they used variables sampling.
 Disadvantages of MUS
• MUS does not cope easily with errors of understatement
or where they are negative-valued items in the
population.
• MUS sampling can be over-conservative in evaluating
errors. This may cause the auditors to reject an
acceptable population.
• Where the auditors cannot use computerized sample
selection, adding cumulatively through the population by
hand can be time-consuming.
• Where there are likely to be numerous errors, a larger
sample size may be required in order to obtain an
acceptable result than the corresponding sample size
using variables sampling.
 Advantages of Variable sampling

• Variables sampling will generally be

more efficient than MUS if there is likely
to be a large number of differences
between recorded value and audited
value.
• Auditors can increase the sample size
more easily.
• They can more easily cope with zero and
negative value items in the population.
Disadvantages of Variable sampling

• It is far more complicated to use.

• The size of the sample depends largely
on the value of the standard deviation of
the population.