Compiled By: Md. Mahedi Hasan FCA CPFA Adjunct Faculty Department of Accounting and Information Systems Bangladesh University of Professionals (BUP) Definition and features
Audit sampling: the application of an audit procedure to less than
100% of the items within a population to obtain audit evidence about particular characteristics of the population.
How many items to examine
Audit sampling is important Which items to select How sample results are evaluated and extrapolated because it provides information on: to the population in order to tell us something about the population (e.g. level of misstatement). Risk Sampling risk: the Non-sampling risk: arises probability that the auditor from factors, other than has reached an incorrect sample size, that cause an conclusion because audit auditor to reach an incorrect sampling was used rather conclusion, such as the than 100% examination possibility that:
The auditor applies a
The auditor will fail to procedure that is not recognise misstatements effective in achieving a included in examined items specific objective. Characteristics of interest When sampling, the auditor identifies a particular characteristic of the population to focus upon.
For tests of control, the characteristic of interest is the rate of
deviation from an internal control policy or procedure.
For substantive tests, the characteristic of interest is monetary
misstatement in the balance. Various means of gathering audit evidence
100% examination: this is not a sampling method.
Selecting specific items: e.g. high value or high risk — this is not a sampling method. Items selected will not necessarily be representative of the population.
Audit sampling. Types of Sampling Statistical sampling: an approach to sampling that has the following characteristics:
• Random sample selection
• Use of probability theory to evaluate sample results • Major advantage is defensibility, thorough quantification of sampling risk
Non-statistical sampling: sampling approaches that do not have all the characteristics of statistical sampling.
• Major advantage is greater application of audit experience
• The basic principles and essential procedures identified in ISA 530 apply equally to both statistical and non-statistical sampling. Current practice and business risk assessment
• There are some disparities with regard to the practice of sampling within the large audit firms. • Firms will usually use an unbiased approach but the size of the sample they select will usually be determined with the help of decision aids within the firm. • Sample sizes that are commonly used in practice are around 20 items where a moderate level of testing is required, or 30 items where more extensive levels of testing are undertaken. Basic requirements of all audit samples
Whenever an auditor uses audit sampling (statistical or non-statistical) the
following requirements apply:
• Planning and design: The auditor considers the relationship of the
sample to the relevant specific audit objective or control objective and considers certain other factors that should influence sample size.
• Selection: Sample items are selected in such a way that the sample can be expected to be representative of the population.
• Performing the procedure and evaluating results: The auditor
performs the required audit procedures on the items selected, projects the results of the audit procedures undertaken on the sample to the population and considers sampling risk. Auditor must consider:
✓ Objectives of the audit test (usually
Planning and related to an audit assertion of interest)
designing the ✓ Population from which to sample
sample ✓ Possible use of stratification
✓ Definition of the sampling unit.
Defining the audit objective and population
Once the audit objective is specified, such as reliance on controls or
misstatement of account balance, the auditor must consider what conditions would constitute an error.
The auditor must ensure that the population from which the sample is to be selected is complete and appropriate to the audit objective. Stratification Stratification: occurs when the auditor divides the population into a series of sub-populations, each of which has an identifying characteristic, such as monetary value (ISA 530 Appendix 1, paragraphs 1–4).
Can assist with audit efficiency as it allows the auditor to reduce the sample size by reducing variability without increasing the sampling risk.
Can direct auditor’s attention to areas of audit interest, especially risky or
material items. Example The auditor may stratify the population of revenue into three subpopulations: revenue from Product A, revenue from Product B and revenue from Product C. The auditor may select a sample of revenue from Product A. The results of the testing of that sample can be extrapolated across the whole subpopulation of revenue from Product A. A sample may be selected of revenue from Product B and again, the results of that testing can be extrapolated across that subpopulation. Revenue from Product C may not be tested if it is considered immaterial. Defining the sampling unit
• The sampling unit is commonly the:
❖Transactions or balances making up
the account balance, or
❖Individual currency amount that make
up an account balance or class of transactions, commonly referred to as Monetary-Unit Sampling (MUS) or Dollar Unit Sampling (DUS). Common Sample Technique
Random selection Haphazard
— random Systematic selection — select number selection without conscious generation bias. • For example, suppose the sample size is 20 and the number of items in the population is 10 000: • Step 1: Calculate the sample interval:
No. of items in population 10 000
Steps for Sample size = 20 = 500
Systematic • Step 2: Give every item in population chance of selection
Selection by choosing a random number (random start) within range of 1 and sampling interval (in this example, 500), e.g. 217. • Step 3: Continue to add sampling interval to random start, and identify items to be sampled, e.g. item nos. 217, 717, 1217. . . 9217, 9717. Non-Statistical sample selection methods
Block selection: the auditor selects all items of a specified type processed on a particular day, week or month.
Judgmental selection (based on sample item
characteristics): the auditor selects large or unusual This method has a conscious bias and cannot be considered items from the population or uses some other representative. judgmental criterion for selection. Automated Tools and Techniques
Test data - Test data involves the auditor submitting 'dummy' data into the client's system to ensure that the system correctly processes it and that it prevents or detects and corrects misstatements
Audit Software - Audit software is used to interrogate a client's system. It can be either packaged, off-the-shelf software or it can be purpose written to work on a client's system
Data Analytical Tools - is the science and art of discovering and analysing patterns, deviations and inconsistencies, and extracting other useful information in the data of underlying or related subject matter of an audit through analysis, modelling, visualisation for the purpose of planning and performing the audit. Thank you
