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Audit Sampling- ISA 530
By Gabriel Tyokoso, PhD Auditing II Lecture Notes for B.Sc Accounting Department of Economics and Finance University of The Gambia Sampling defined
What is audit sampling?
• Audit sampling involves the application of audit procedures to less
than 100 percent of items within a class of transactions or account balance such that all sampling units have a chance of being selected.
• This will enable the auditor to obtain and evaluate audit evidence about some characteristic of the items selected in order to form or assist in forming a conclusion concerning the population from which the sample is drawn. Sampling methods
• To gather audit evidence, the auditor has three choices to make; selecting all items, selecting specific items, and audit sampling.
• Statistical sampling: Statistical sampling means any approach to sampling
where the auditor randomly select sample items and probability theory is used to evaluate sample results, including measurement of sampling risk. The auditor does not have control over items to be selected.
• Non-statistical sampling: A sampling approach that does not have
characteristics of statistical sampling is non statistical sampling. This means selecting a sample of appropriate size on the basis of the auditor’s judgement of what is desirable. Common sample selection methods
• Random Sampling: This ensures that all items in the population have an equal chance of selection, for example by use of random number tables.
• Systematic Sampling: This involves selecting items using a constant interval
between selections, the first interval having a random start. When using systematic selection, the auditors need to ensure that sampling interval corresponds with a particular pattern in the population.
• Haphazard Sampling: This may be an acceptable alternative to random selection
provided the auditors are satisfied that the sample is not unrepresentative of the entire population. When auditors use this method, care needs to be taken to guard against making a selection which is biased, for example, towards items which are easily located, as they may not be representative. Common sample selection methods contd
• Stratified Sampling: This involves the division of the population into
layers or strata, each stratum being subjected to a separate test which could be conducted by random or interval sampling methods. This technique is appropriate where the population consists of a wide range of values among the items under examination.
• Cluster Sampling: This is suitable when data to be examined are stored
in such a manner that the selection of group, or cluster, would be appropriate test. In these circumstances, each cluster could be allocated a number, the particular cluster to be tested being selected by the use of random table. Factors that affect the use of statistical sampling
• The population (the total number of items or transactions to be examined)
must be sufficiently large. The potential margin of error is minimal with large numbers. The question of what should be the minimum size of population to justify the use of statistical sampling can best be answered in a particular context.
• The system that produces the records to be tested must be sufficiently
reliable. If there is no system worthy of the name, it would be dangerous for the auditor to believe that any transaction recorded within it is representative. Where orderliness and regularity are absent, there may be little alternative but to conduct vouching audit involving the detailed examination of almost all the recorded transactions. Factors that affect the use of statistical sampling contd
• All items within a particular population must be homogenous i.e. they
must fall within the same category. Thus, items must fall within the same materiality bands and the recording of all items within the population must be effected in the same manner and must be subjected to the same internal checks and control.
• All items within the population must be both identifiable and accessible. The validity of any sample depends on the requirement that each item within the population must stand on equal chance of being selected for examination. It is when all the items within the population are identifiable and accessible that this requirement can be met. Advantages of statistical sampling
1) At the conclusion of a test, the auditors are able to state with a definite level of confidence that the whole population conforms to the sample result, within a stated precision limit.
2) Sample size is objectively determined; having regard to the degree of risk the auditors are prepared to accept for each application.
3) The process of fixing required precision and confidence levels compels the auditors to consider and clarify audit objectives.
4) The results of test can be expressed in precise mathematical terms.
5) To a large extent, bias in selecting sample units is eliminated.
Disadvantages of statistical sampling
a. Auditing has never been a mathematical discipline, and a highly developed intuition has always been a more valuable audit attribute than the possession of mathematical knowledge.
b. Mathematically valid sampling schemes take long time, during which time a good deal of representative random sampling could have been conducted, with the reasonable assurance that its conclusions might be valid for audit purposes.
c. Statistical sampling invariably results in the examination of sample size much smaller than those traditionally used by auditors. The validity of the conclusion drawn therefore depends upon rigid adherence to the tenets of the discipline and thus upon the technical grasp by all members of the audit team of the statistical principles involved. Disadvantages of statistical sampling contd
c. Many of the decisions which have to be reached before a sampling
scheme can be implemented are invariably based on subjective view. Many auditors are therefore suspicious of the validity of the technique or in the least analysis, of how a court of law might view audit conclusion arrived at in this way.
d. Statistical sampling often needs back-up by further tests within the
population reviewed: large items, non-routine items, sensitive items etc. Advantages of non-statistical or judgmental sampling
1) It has been in use for many years and lend itself for easy application through experience.
2) No special knowledge of statistics is required, after all, auditing has
never been a quantitative subject.
3) No time is wasted in playing with mathematics.
4) The auditor can bring his judgement to play, using the sixth sense. Disadvantages of non-statistical or judgmental sampling
1) It is unscientific 2) It is wasteful-usually sample size are too large 3) No quantitative results are obtained 4) Personal bias in the selection of samples is unavoidable 5) There is no real logic to the selection of the sample or its size 6) The sample selection can be imbalanced to meet the auditor’s need e.g. selection of items, near the year end to help with cut-off evaluation 7) The conclusion reached on the evidence from samples is usually vague. End remarks
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