HOW TO GUIDE

APPLYING ASSURANCE FROM

OTHER AUDIT PROCEDURES TO
OSP SAMPLING
SAMPLING APPROACHES - HOW TO GUIDE

CONTENTS INTRODUCTION
When we use the Sampling Worksheet for Other Substantive Procedures (OSPs),

1
How does assurance from other we are prompted to consider several different factors which may impact our overall
audit procedures fit into our OSP sample size. One of these factors is the consideration of how much assurance is
sample size calculation? needed from the sampling procedure, or said differently, when it is appropriate to
take assurance from other procedures.

2
This How to Guide provides practical guidance for engagement teams to answer
What factors do we consider when the following questions:
taking assurance from particular
1. How does assurance from other audit procedures fit into our OSP sample size
types of procedures?
calculation?

3
How, in practice, can we take 2. What factors do we consider when taking assurance from particular types of
assurance from other audit procedures?
procedures? 3. How, in practice, can we take assurance from other audit procedures?

4
Although BDO’s methodology (i.e., our policies, procedures, and guidance) follows
How to Guide tips International Standards on Auditing (ISAs) issued by the International Auditing and
Assurance Standards Board (IAASB), many BDO firms also operate in jurisdictions
that have their own auditing standards and regulatory requirements, which may
go beyond those required by the ISAs. In applicable sections, we have highlighted
certain incremental requirements for audits conducted under the Public Company
Accounting Oversight Board (PCAOB) standards.
Engagement teams who want to find out more about sampling approaches or
concepts can access additional How to Guides here.

GO FORWARD

GO BACK

RETURN TO INDEX
02
SAMPLING APPROACHES - HOW TO GUIDE

One of the key judgments we make when determining an OSP sample size is the level of planned assurance for a particular

1.
procedure. The BDO audit approach starts with risk of material misstatement (RMM) levels of ‘normal’ and ‘significant’ which
result in an R factor of 2.0 or 3.0 respectively:

The Sampling Worksheet for OSPs enables us to work through a series of decisions about assurance obtained from other
How does assurance from procedures affecting the Financial Statement Area (FSA)/assertion before calculating a ‘final’ OSP sampling R factor.

other audit procedures fit

into our OSP sample size
calculation?

This approach enables us to look at the planned assurance from individual and aggregate procedure perspectives.
SECTION 1
03
SAMPLING APPROACHES - HOW TO GUIDE
Let’s consider how this works within the Sampling Worksheet for OSPs by looking at an example – Little Sutton Limited:

Following their initial planning work and engagement team discussion, the Little Sutton Limited engagement team has determined that there is a RMM affecting the Existence (E)
assertion in the Accounts Receivable FSA and resulting in an RMM level of 2.0.
To arrive at the OSP sampling R factor, the team then deducts the relevant sources of audit assurance generated by other planned audit procedures – in this case a Substantive
Analytical Procedure (SAP) that looked at the relationship between Revenue and Accounts Receivable and a Data Analytics Test (DAT) which covered Revenue:
EXAMPLE – LITTLE SUTTON LIMITED
Having judgmentally decided on an appropriate level of assurance to
take from a SAP and DAT, we can see, in this example, how this results
in a lower level of assurance (i.e., R factor) being required from this
particular sampling OSP.
 In section 2 we look at the factors that might affect the judgments
we make.
 In section 3 we explore more detailed examples that focus on
potential risks and audit responses.
SECTION 1
04
SAMPLING APPROACHES - HOW TO GUIDE

Looked at visually, this engagement team’s planned approach results in the

following mix of procedures for Little Sutton Limited.

EXAMPLE – LITTLE SUTTON LIMITED (CONTINUED)

Note that the ‘assurance from this sampling OSP’ is the level of assurance that the
engagement team plans to obtain from the Sampling Worksheet for OSPs.

POTENTIAL SAP
ASSURANCE

POTENTIAL DAT
ASSURANCE

RMM LEVEL

ASSURANCE FROM THIS

SAMPLING OSP

Reminder: Information produced by the entity ((IPE) is any data or information provided
to support a balance, transaction or analysis that is used in performing audit procedures
relative to the associated FSA. The testing of IPE is performed as part of either our
substantive procedures(whether it be a SAP, DAT or OSP) or as part of Tests of Controls
(TOCs). On its own, the testing of IPE is not considered to be an OSP from which an
engagement team can reduce the level of assurance needed from its audit procedures
(for example, a sampling OSP).
SECTION 1
05
SAMPLING APPROACHES - HOW TO GUIDE

ASSERTION(S) COVERED BY THE OTHER PROCEDURES

2.
A key consideration is whether our planned TOC, SAP, DAT or other OSP procedures provide assurance related to the risk and
assertion(s) being addressed on the Sampling Worksheet for OSPs.
In Scenario 1, let’s assume that the mix of audit procedures and assertions being tested by each procedure is as follows
(individual risks have not been identified, for simplicity only the assertions are shown):

SCENARIO 1

What factors do we
consider when taking
assurance from particular
types of procedures?

As the RMM relates only to the E assertion, the engagement team identifies relevant other procedures to the extent that
they address the same risk and assertion. As we can see from the Sampling Worksheet screenshot, the engagement team
incorrectly included planned assurance of 0.5 from another OSP that did not provide assurance for the risk related to the E
assertion. As a result, their OSP sampling R factor should have been 2.0 not the 1.5 they calculated.
SECTION 2
06
SAMPLING APPROACHES - HOW TO GUIDE

IDENTIFYING OVERLAP OF PLANNED ASSURANCE FROM OTHER PROCEDURES IN OTHER FSAS

While another planned procedure may cover the same risk(s) and assertion(s) as our sampling OSP, equally important is the nature and extent of the planned assurance from the other
procedures.
For example:

Just because a DAT has been planned in the Revenue cycle does not automatically lead us to reduce the RMM level of a particular sampling OSP by the DAT planned elsewhere within the
cycle. We need to think about the:
• Nature of the DAT being planned: Is this more of a risk assessment data analytic (RADA) than one generating assurance (for example, where an Audit Data Analytic procedure is a
combination of both RADA and DAT elements)?
• Has the DAT been developed in response to a different risk?
• Data being used by the DAT: Is it based on the same data population as the sampling OSP? Does the DAT include additional data (e.g., post year end or external data) that is not the subject
of our sampling OSP?
• Analytics that are likely to be produced (i.e., whether the DAT examines the profile of the population, provides evidence about the attributes of a population or performs certain detailed
analyses).

Performing tests in related or linked FSAs does not automatically mean we can apply that assurance to another FSA. For example, the level of planned assurance for our sampling OSP on the
Revenue FSA may be reduced by planned assurance from a SAP performed on Accounts Receivable – but this is not an automatic assumption.
SECTION 2
07
SAMPLING APPROACHES - HOW TO GUIDE
DECIDING HOW MUCH ASSURANCE WE CAN TAKE FROM OTHER PROCEDURES

FACTOR POTENTIAL IMPACT ON SAMPLING OSP

PERIOD
The population being tested by the other procedures may be for a different accounting period (e.g., the procedure may be designed to focus only on post-year end
COVERED transactions) or the procedure may focus on different periods within the population.
If Accounts Receivable turnover in ‘days’ is generally 30 days, then using the work performed on Accounts Receivable to gain assurance over Revenue for the
full year is unlikely to be appropriate.
Similarly, if the entity regularly invoices in advance for services, confirming balances due as of a certain date may not provide evidence related to the
Existence of those revenues as of that date.
EXAMPLE Likewise, if we intend to reduce our Accounts Receivable sampling procedures for procedures performed on revenues, the Existence of a sale may not
always provide evidence regarding Existence of Accounts Receivable as of the confirmation date, unless that sale was verified as being included in Accounts
Receivable at the confirmation date.
Existence of a sale as part of our planned Revenue testing may not always provide evidence regarding Existence of Accounts Receivable (whether due to
timing differences, repayment of receivables, issuance of credit notes, etc.).
A DAT may be designed to cover an entire period of revenue transactions or a portion thereof; a SAP may be based on an individual product line or revenues
generated across an entire portfolio and for a limited or extensive period.

TOTALITY OF � As noted in section 1 and scenario 1, we consider the aggregate of planned procedures by looking at the mix of other procedures, the assurance planned from each and the
PLANNED assertion(s) covered.
WORK
We may decide that one procedure performed on Accounts Receivable may not be sufficient to provide 0.5 assurance towards our sampling OSP when looked
EXAMPLE

at individually; however when combined with another procedure (e.g., sales cut-off procedures), we may form a different conclusion.

�By adopting this step back approach, and looking at the totality of our planned work, we can see how the planned procedures have the potential to reduce the R factor for
the sampling OSP.
SECTION 2
08
SAMPLING APPROACHES - HOW TO GUIDE

FACTOR POTENTIAL IMPACT ON SAMPLING OSP

QUALITY OF Certain
planned procedures may lead to higher quality evidence for the purposes of determining the assurance required from a sampling OSP.
PLANNED
also consider the nature of the IPE that we are planning to use in our procedures.
We
PROCEDURES
A confirmation provided by an Accounts Receivable customer may be considered higher quality evidence than a procedure which was based on internally

EXAMPLE
generated documentation (such as invoices or customer orders).
This may impact the amount of assurance we decide to apply from other audit procedures.

SUFFICIENCY When
used in a different context, certain planned procedures may not always provide the same amount of assurance.
OF
PROCEDURES Our work related to the Accounts Receivable FSA consists of vouching to invoices and underlying shipping documentation from a sample of outstanding
invoices, and these procedures are the same procedures that we are performing through a sampling OSP over the Revenue population.
� Our Accounts Receivable procedures results in testing 25 invoices
EXAMPLE

� For the Accounts Receivable work performed, we take a reduction in our revenue Sampling OSP R factor of 0.5, reducing the Revenue sample size by 80
invoices.
The reduction in the sample size for the Revenue sampling OSP is likely not appropriate, given the nature and totality of the work performed.
In this situation, an alternative approach could be for the team to treat the 25 invoices tested as key items when determining the population of items being
sampled and tested as part of the Revenue procedure. The impact is to reduce the number and monetary value of items being tested within Revenue.

THE KEY THING TO NOTE IS THAT TAKING ASSURANCE FROM OTHER TYPES OF PROCEDURES IS NOT AUTOMATIC – IT HAS TO BE BALANCED BY THE RANGE OF FACTORS OUTLINED IN THE
ABOVE TABLE – AND IS A JUDGMENTAL DECISION FOR THE ENGAGEMENT TEAM.
SECTION 2
09
SAMPLING APPROACHES - HOW TO GUIDE

3.
As noted in section 2, determining the level of assurance achieved from other procedures and the impact on our planned
sampling OSP requires consideration of a range of factors and use of our prefessional judgment. The facts and circumstances
of the entity, nature of the FSA being audited, the population being tested in each test, and planned procedures all have an
impact on how we may reduce, or decide not to reduce, the final sampling OSP R factor.
Each of the examples in this section demonstrates how a variation in factors might lead to a different rationale and outcome
for an engagement team.

How, in practice, can we

take assurance from other
audit procedures?
SECTION 3
10
SAMPLING APPROACHES - HOW TO GUIDE

EXAMPLE A - PEEL & BROWN HOLDINGS (NORMAL RMM)

The engagement team of Peel & Brown Holdings plan to use one sampling OSP (OSP 1) to reduce the OSP sampling R factor of another sampling OSP (OSP 2).
FACT PATTERN
� The assigned RMM level for Revenue FSA, Existence assertion is 2.0
� OSP 1 is a sampling procedure that has been performed to confirm Accounts Receivable balances and has provided the team with some assurance over the Existence of the Accounts
Receivable FSA
� OSP 2 is a sampling procedure designed to cover the Revenue FSA, Existence assertion.
The engagement team analyzes the level of assurance obtained from Accounts Receivable sampling (OSP 1) and determines how much assurance to include in the Revenue sampling (OSP
2) calculation. Three potential outcomes could be:

OUTCOME A
The team establishes that the composition of items verified through the
EXAMPLE

Accounts Receivable confirmation (OSP 1) procedure provides a direct

relationship between sales and accounts receivable and due to the
nature of particular revenue items and accounts receivable balances, the
amounts confirmed support a significant amount of annual revenues.

The engagement team decides that it may be appropriate to take 1.0

assurance from the Accounts Receivable procedure (OSP 1) through to the
planned Revenue procedure (OSP 2).
SECTION 3
11
SAMPLING APPROACHES - HOW TO GUIDE

OUTCOME B
The team establishes that the composition of the items verified through
the Accounts Receivable confirmation (OSP 1) procedure related mainly
to revenue items occurring near to the confirmation date (i.e., Accounts
Receivable in Peel & Brown Holdings has high turnover).
The engagement team decides that it may be appropriate to take only 0.5
assurance from the Accounts Receivable (OSP 1) procedure through to the
planned Revenue (OSP 2) procedure.
Even if the team had considered other OSPs (for example cut-off procedures
– OSP 3), they may not be able to further reduce the planned assurance from
EXAMPLE

Revenue procedure (OSP 2) due to both the Accounts Receivable procedure

(OSP 1) and cut-off procedures (OSP 3) addressing the same (e.g., year-end)
limited population.

OUTCOME C
A third outcome may be to take no OSP assurance because the revenue population being tested by the Accounts Receivable (OSP 1) procedure represents a small proportion or amount
of total revenues in the period. For example, Accounts Receivable may have high turnover or conversely, due to seasonality, it may be at its lowest point during the year end period,
therefore representing a small proportion of revenues for the entire period.
In this situation, the team could use an OSP sampling factor of 2.0 for the Revenue procedure (OSP 2) (i.e., no reduction from performing other OSPs).
SECTION 3
12
 EXAMPLE B - PEEL & BROWN HOLDINGS (SIGNIFICANT RMM)
SAMPLING APPROACHES - HOW TO GUIDE

Assume the same fact pattern as Peel & Brown Holdings (Example A) except the engagement team has identified a significant risk over the Existence of Revenue due to a fraud risk over
revenue cutoff and side contract arrangements.
The engagement team of Peel & Brown Holdings plans to use one sampling OSP (OSP 1) on Accounts Receivable to reduce the OSP sampling R factor of another sampling OSP (OSP 2)
on Revenue. The engagement team also plans to perform additional OSPs to address the fraud risk raised.
FACT PATTERN
� The assigned RMM level for Revenue FSA, Existence assertion is 3.0 due to a fraud risk raised over revenue cutoff and side contract arrangements

� OSP 1 is a sampling procedure that has been performed to confirm Accounts Receivable balances and has provided the team with assurance over the Existence of the Accounts
Receivable FSA

� OSP 2 is a sampling procedure designed to cover the Revenue FSA, Existence assertion.
EXAMPLE

The engagement team analyzes the level of assurance obtained from the Accounts Receivable sampling procedure (OSP 1) and determines how much assurance to include in the
Revenue sampling OSP (OSP 2) calculation. The three potential outcomes identified in Example A to arrive at 2.0 assurance still apply; however, the engagement team also performs
additional procedures to address the fraud risk raised and to obtain an additional 1.0 assurance.
OUTCOME
To address significant risks raised due to potential fraud or error, the engagement team in this scenario decides not to perform additional sampling over the entire population to
address the risks raised. Rather than doing more sampling and performing the same testing that would be done if the RMM level for the Revenue FSA had remained a 2.0, the additional
procedures performed are targeted to be more responsive to the risks raised.
In this example, a fraud risk was raised specific to revenue cutoff and side contract arrangements. Example procedures may include gaining an understanding of Peel & Brown’s shipping
terms, understanding how long shipment to the destination ordinarily takes and then performing targeted testing on sale transactions during the period where shipments may still be in
transit at period end. To address the risk of side agreements, the engagement team may also consider sending contract confirmations to Peel & Brown’s major customers which covered
a significant proportion of revenue transactions during the period. These procedures are different from those performed for Accounts Receivable (OSP 1) and Revenue (OSP 2) and do
not necessarily include additional sampling.

Both ISA and PCAOB standards require that the approach for significant risk areas includes substantive procedures that are specifically responsive to the identified risks. In addition, where our
approach consists of only using substantive procedures (no controls reliance) – the ISA standards require these procedures include test of details.

AUDITS OF ISSUERS1 UNDER THE PCAOB STANDARDS

PCAOB standards highlight that, for significant risks, the auditor should perform substantive procedures, including tests of details, that are specifically responsive to the assessed risks,
regardless of which testing strategy is used, as it is unlikely that audit evidence obtained from substantive analytical procedures alone will be sufficient.
SECTION 3

To comply with PCAOB standards it is important to ensure that we include substantive tests of details that are specifically responsive to each of the significant risks that have been identified.
13

1 The term ‘Issuer’ is defined under PCAOB Rule 1001(i)(iii)

SAMPLING APPROACHES - HOW TO GUIDE
EXAMPLE C - CORRIN & FOLLY INC

The engagement team of Corrin & Folly Inc plans to use a non-sampling OSP (OSP 1) to reduce the OSP sampling R factor of a sampling OSP (OSP 2).
FACT PATTERN
� The assigned RMM level for Revenue FSA, Existence assertion is 2.0
� OSP 1 is a non-sampling procedure designed to perform a test of details on Deferred Revenue Completeness assertion, which provides direct evidence of the Revenue FSA, Existence
assertion.
� OSP 2 is a sampling procedure that has been designed to match individual revenue items to original purchase orders, shipping orders and invoiced amounts and to test the Revenue
FSA, Existence assertion.
The engagement team analyzes the level of assurance obtained from the test of details non-sampling procedure (OSP 1) and determines how much assurance to take to the Revenue
sampling procedure (OSP 2). Three potential variations could be:
VARIATION A
EXAMPLE

The team establishes that the work performed on the test of details non-
sampling procedure (OSP 1) results in a high level of correlation between
Deferred Revenues Completeness and Revenue Existence assertion (for
example, in this situation, the team tested a series of open contracts to confirm
the right proportion of deferred and recognized revenues had been recorded by
the entity).
Given the direct linkage, the engagement team decides that it may be
appropriate to take 1.0 assurance from the Deferred Revenue procedure (OSP
1) through to the planned sampling Revenue procedure (OSP 2).
SECTION 3
14
SAMPLING APPROACHES - HOW TO GUIDE

VARIATION B
The team decides to replace the non-sampling procedure (OSP 1) with a less
extensive OSP 3. Instead of testing a series of open contracts to check the
proportion of recognized revenues, OSP 3 is a more limited test which vouches
open contract amounts to the underlying support for only the largest contracts).

The engagement team decides in this situation that it may be appropriate to take
only 0.5 assurance from OSP 3 through to the planned sampling Revenue procedure
(OSP 2).
EXAMPLE

VARIATION C
In this variation, a new procedure (OSP 4) was designed to obtain assurance for Existence of Deferred Revenue (which provided assurance for Completeness of Revenue).
In this situation the team use an OSP sampling factor of 2.0 for the (OSP 2) procedure because the new Deferred Revenue Existence procedure (OSP 4) does not cover the Existence
assertion for Revenue.
SECTION 3
15
SAMPLING APPROACHES - HOW TO GUIDE

4. HOW TO GUIDE TIPS

Simple steps that engagement teams can think about when determining if it may be appropriate to take
assurance from other audit procedures to reduce the R factor for an OSP sampling procedure, include:

TAKE A STEP BACK IDENTIFY RELEVANT OVERLAPS

Consider whether the other planned procedures Think about how procedures may overlap - perhaps
cover the same assertions and population as the these procedures are based on the same (1) source
sampling OSP we are planning. data or (2) FSAs within a cycle.

DON’T FORGET THE BASICS DECIDE HOW MUCH

Remember the need to test the entity’s IPE for Analyze whether the period covered by the testing,
reliability, including Accuracy, Completeness and nature of testing and quality of testing lead us to
whether the information we plan to use in our OSP conclude that assurance may apply to our sampling
is sufficiently precise and detailed for our purposes. OSP procedure.

USE OUR PROFESSIONAL JUDGMENT

Consider different facts and circumstances without
making assumptions that other procedures
automatically provide some assurance towards a
particular sampling OSP.
GUIDE CHECKPOINTS
16
SAMPLING APPROACHES - HOW TO GUIDE

CONTACT US: How to Guide is issued by the Global Assurance Department and distributed to the International
A&A Coordinators. Please share this publication with relevant partners and staff in your firms.
[email protected]
BDO internal use only.

BDO’, ‘we’, ‘us’, and ‘our’ refer to one or more of BDO International Limited, its network of
independent member firms (‘the BDO network’), and their related entities.

Service provision within the BDO network is coordinated by Brussels Worldwide Services BV, a
limited liability company incorporated in Belgium.

Each of BDO International Limited (the governing entity of the BDO network), Brussels
Worldwide Services BV and the member firms is a separate legal entity and has no liability
for another such entity’s acts or omissions. Nothing in the arrangements or rules of the BDO
network shall constitute or imply an agency relationship or a partnership between BDO
International Limited, Brussels Worldwide Services BV and/or the member firms of the BDO
network. Neither BDO International Limited nor any other central entities of the BDO network
provide services to clients.

BDO is the brand name for the BDO network and for each of the BDO member firms.

© Brussels Worldwide Services BV July 2020.

17