BASIC AUDIT
SAMPLING
CONCEPTS
MEANS OF SELECTING ITEMS
FOR TESTING
Selecting all items (100% examination)
Selecting specific items
Audit sampling.
SELECTING ALL ITEMS (100%
EXAMINATION)
The auditor may decide that it will be most
appropriate to examine the entire population
of items that make up a class of transactions
or account balance (or a stratum within that
population).
SELECTING SPECIFIC ITEMS
The auditor may decide to select specific
items from a population based on such
factors as the auditor's understanding of the
entity, the assessed risk of material
misstatement, and the characteristics of the
population being tested.
SELECTING SPECIFIC ITEMS
Description
High value or key items The auditor may decide to select specific items within
a population because they are of high value, or exhibit
some other characteristic, for example items that are
suspicious, unusual, particularly risk-prone or that
have a history of error.
All items over a certain The auditor may decide to examine items whose
amount values exceed a certain amount so as to verify a large
proportion of the total amount of class of transactions
or account balance.
Items to obtain The auditor may examine items to obtain information
information about matters such as the nature of the entity, the
nature of transactions, and internal control.
Items to test control The auditor may use judgment to select and examine
activities specific items to determine whether or not a
particular control activity is being performed.
AUDIT SAMPLING
Audit sampling involves the application of
audit procedures to less than 100% items
within a class of transactions or account
balance such that all sampling units have a
chance of selection in order to provide the
auditor with a reasonable basis on which to
draw conclusions about the entire
population.
TERMS ARE USED IN THIS CHAPTER:
Error - means either control deviations, when performing tests of
controls, or misstatements, when performing tests of details.
Deviation - difference between what was expected, based on
the documentation of controls, and what actually occurred.
Deviations are stated in terms of percent
Misstatement - difference between the amount computed by
the auditor and the amount actually recorded or reflected in
the accounting records. Misstatements are presented in terms
of monetary amount.
Total error - the rate of deviation or total misstatement.
Expected error-The error that the auditor expects to be present
in the population.
Anomaly - an error that arises from an isolated event that other
than on specifically identifiable occasions and is error is not
representative of errors in the population.
Population-The entire et of da from which a sample is selected
and about which the auditor wishes to draw conclusions. A
population may be divided into strata, or sub-populations, with
each stratum being examined separately. The term population is
used to include the term stratum.
Sampling unit - the individual items constituting a population, for
example checks listed on deposit slips, credit entries on bank
statements, sales invoices or debtors' balances, or a monetary
unit.
AUDIT SAMPLING IN RELATION
TO AUDIT PROCEDURES
Risk Assessment Procedures – Sampling is not
used.
Test of Controls – Sampling is used.
Substantive Testing - Sampling is used.
AUDIT SAMPLING AND AUDIT
RISK
Audit risk as the likelihood that an auditor
may unknowingly fail to modify his or her
opinion on materially misstated financial
statements.
Audit risk is a combination of two
components:
Riskof material misstatement; and
Detection Risk
RISK OF MATERIAL
MISSTATEMENT
DETECTION RISK
Detection risk is the likelihood that errors
could occur and could be material when
combined with other accounts but will not be
detected by auditor's procedures.
SAMPLING RISK
This are the uncertainties related to
sampling.
Sampling arises from the possibility that the
auditor’s conclusion based on a sample may
be different from the conclusion reached if
the entire population were subjected to the
same audit procedure.
NON- SAMPLING RISK
This are uncertainties arising from factors
unrelated to sampling.
Non-sampling risk includes all aspects of
audit risk not due to sampling.
SAMPLING RISK IN TESTS OF
CONTROLS
Two aspects of sampling risk are critical in test of
controls:
Risk of assessing control risk too high (or the risk of
under reliance.
This is the risk that a sample deviation rate supports
assessing control risk at the maximum when,
unknown to the auditor, the true deviation rate in
the population supports assessing control risk below
the maximum.
Risk of assessing control risk too low (or the risk of
over reliance).
This is the risk that a sample does support assessing
control risk below the maximum wen, unknown to the
auditor, the true deviation rate in the population
SAMPLING RISK IN SUBSTANTIVE
TESTS
Two aspects of sampling risk are critical in
substantive tests:
Risk of incorrect rejection
Therisk that a sample supports the conclusion
that a recorded account balance is materially
misstated when, unknown to the auditor, the
account is not materially misstated.
Risk of incorrect acceptance
Therisk that a sample supports the conclusion
that a recorded account balance is not materially
misstated when, unknown to the auditor, the
account is materially misstated.
GENERAL APPROACHES TO
AUDIT SAMPLING
Statistical sampling
Non- statistical sampling
STATISTICAL SAMPLING
Statistical sampling plans apply the laws o
probability to aid an auditor in designing an
efficient sample, in measuring the
sufficiency of evidence obtained , and in
evaluating the sample.
ADVANTAGES AND DISADVANTAGES
OF STATISTICAL SAMPLING
Advantages of Statistical Sampling
It aids an auditor in determining the sample size required to
meet given objectives.
It provides more objective audit evidence.
It allows an auditor to measure precision, reliability, and
sampling error.
Disadvantages of Statistical Sampling
There is a danger of accepting statistical evidence at face
value, without sufficient skepticism.
The cost of statistical sampling could exceed the benefits.
Statistical sampling may be less appropriate in some cases
than non-statistical sampling or other audit procedures for
gathering evidence
SAMPLE SELECTION METHODS
Random- Number Sampling
Systematic Samplings
Block selection (cluster sampling)
Haphazard sampling
RANDOM-NUMBER SAMPLING
This method utilizes random-number tables
or computer-generated random numbers to
select sampling units from a population.
Random-number tables contain columns and
rows of randomly generated digits.
SYSTEMATIC-SAMPLING
This involves selecting every “nth” item from
a population of sequentially ordered items.
Systematic sampling eliminates the need to
establish correspondence between
population items and random digits, and
therefore is useful when population items
lack identification numbers.
BLOCK SELECTION (CLUSTER
SAMPLING)
This method involves selecting a group of
items arranged contiguously within a larger
grouping of sampling units.
HAPHAZARD SAMPLING
Haphazard sampling consists of sampling
units selected without special reasons, but
also without conscious bias.
AUDIT SAMPLING
CONSIDERATIONS
Characteristics of Interest
Appropriateness and Completeness of the
Population
Internally Generated Information.
VALUE-WEIGHTED SELECTION
It will often be efficient in performing tests
of details, particularly when testing for
overstatements, to identify the sampling unit
as the individual monetary units (for
example, pesos) that make up a class of
transactions or account balance.
ATTRIBUTES SAMPLING
The procedures for attributes sampling are presented
below:
Determine the objective(s) of the test.
Define the attribute (characteristic of a control)
and deviation(absence of an attribute) conditions.
Define the population.
Choose an audit sampling approach / technique.
Determine the sample size and the sample
selection method.
Perform the sampling plan.
Evaluate sample results.
Comply with documentation requirements.
FACTORS AFFECTING SAMPLE
SIZE FOR TESTS OF CONTROLS
VARIABLES SAMPLING
The procedures for variables sampling are presented
below:
Determine the objective(s) of the test.
Define "fair presentation" and "material
misstatement".
Define the population.
Choose an audit sampling approach / technique.
Determine the sample size and the sample
selection method.
Perform the sampling plan.
Evaluate sample results.
Comply with documentation requirements.
FACTORS AFFECTING SAMPLE
SIZE FOR SUBSTANTIVE TESTS
PROJECTING ERRORS
Projections for Tests of Controls
For tests of controls, no explicit projection of
errors is necessary since the sample error rate is
also the projected rate of error for the
population as a whole.
Projections for Substantive Tests
For tests of details, the auditor should project
monetary errors found in the sample to the
population, and should consider the effect of the
projected error on the particular audit objective
and on other areas of the audit.
COMMONLY USED PROJECTION
TECHNIQUES
Difference estimation
Ratio estimation
Mean-per –unit estimation
DIFFERENCE ESTIMATION
Difference estimation is used to measure the
estimated total misstatement amount in a
population when there is both a recorded
value and an audited value for each item in
the sample.
The use of difference estimation is
appropriate when the misstatement in an
account is, not affected by the book value of
the item being examined.
RATIO ESTIMATION
Ratio estimation is similar to difference
estimation except that the point estimate of
the population misstatement is determined
by multiplying the portion of sample amount
misstated times the total recorded
population book value.
The use of ratio estimation is appropriate
when the misstatement in an account is
directly proportional to its
book value.
MEAN-PER-UNIT ESTIMATION
Under mean-per-unit estimation the auditor is
concerned with the audited value rather than the
misstatement amount of each item in the sample.
The Point estimate of the audited value is the
average audited value of items in the sample
times the population size. The computed
precision interval is computed on the basis of the
audited value of the sample items rather than the
misstatements.
The use of mean-per-unit estimation is
appropriate when individual populations do not
have recorded values
PROBABILITY-PROPORTIONAL-
TO-SIZE (PPS) SAMPLING
Sample selection of individual peso amounts in a
population by the use of random or systematic sample
selection.
In PPS sampling, the auditor randomly selects individual
pesos from a population and then audits the balances,
transactions, or documents - called logical units - that
include the pesos selected.
Each peso in the population has an equal chance of being
selected, but the likelihood of selecting any one logical
unit for testing is directly proportional to its size.
PPS sampling is most appropriate when no errors are
expected (although it is also appropriate when one or
few errors are expected); and testing for overstatement
(normally for assets and income).
