AUDIT SAMPLING

Nature Timing Extent

100% Examination Examining entire population.

Population
Significant risk
Other means do not provide SAAE
Cost effective

Specific items Examining:

High Value or Key Items
Items to obtain information
Items to test control activities

Involves the application of audit

Audit Sampling
procedures to less than 100% of
items within a class of transactions or
account balance such that all
sampling units have a chance of
selection.
 Affects EFFICIENCY
AR Type 1: Alpha
For TOC:
Risk of under reliance
Risk of assessing CR
RMM DR too high
POPULATION
ADEQUATE INADEQUATE
Non Sampling

ADEQUATE
Sampling Risk RELIABLE UNRELIABLE
Risk 2
RELIABLE RELIABLE

SAMPLE
UNRELATED to RELATED to
sampling sampling

INADEQUATE
RELIABLE UNRELIABLE
▪ Proper ▪ Increase 1
UNRELIABLE UNRELIABLE
planning sample size
▪ Direction, ▪ Use
supervision, appropriate Affects EFFECTIVENESS
review sample Type 2: Beta
▪ Quality control selection For TOC:
method Risk of overreliance
Risk of assessing CR
too low
 Affects EFFICIENCY
AR Type 1: Alpha
For ST:
Risk of INCORRECT
REJECTION
RMM DR
POPULATION
NOT MAT. MISSTATED MAT. MISSTATED
Non Sampling
Sampling Risk

MISSTATED
MAT. MISSTATED

NOT MAT.
NOT MAT. MISSTATED
Risk 2
NOT MAT. MISSTATED NOT MAT. MISSTATED

SAMPLE
UNRELATED to RELATED to
sampling sampling NOT MAT. MISSTATED MAT. MISSTATED

MISSTATED
1

IMAT.
▪ Proper ▪ Increase MAT. MISSTATED MAT. MISSTATED
planning sample size
▪ Direction, ▪ Use
supervision, appropriate Affects EFFECTIVENESS
review sample Type 2: Beta
▪ Quality control selection For TOC:
method Risk of INCORRECT
ACCEPTANCE
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test.

Define the deviation or misstatement Consider the

Identify the relevant population assertion being
Determine the relevant sampling unit tested and the
Select the appropriate sampling approach
audit objective..
Determine the sufficient sample size

Select the representative sample items

Perform testing and evaluate evidence

Evaluate the test results and reach
conclusion
Complete documentation
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test.

Define the deviation or misstatement Error – control deviations or misstatements

Identify the relevant population Deviation – departure from the prescribed

Determine the relevant sampling unit internal control policy or procedure

Select the appropriate sampling approach

Misstatement - the difference between what
Determine the sufficient sample size is required what is actually reported
Select the representative sample items
Anomaly - a misstatement or deviation that
Perform testing and evaluate evidence is demonstrably not representative of
Evaluate the test results and reach misstatements or deviations in a population
conclusion
Complete documentation
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test.

Define the deviation or misstatement Population must be APPROPRIATE

and COMPLETE. If highly variable,
Identify the relevant population
consider STRATIFICATION.
Determine the relevant sampling unit

Select the appropriate sampling approach A sampling unit is the individual items
Determine the sufficient sample size constituting a population (may be a
Select the representative sample items record, a balance, an item, or a
monetary unit).
Perform testing and evaluate evidence
Evaluate the test results and reach
conclusion MONETARY UNIT SAMPLING
Complete documentation VALUE WEIGHTED SELECTION
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test.

Define the deviation or misstatement Statistical – uses the law of

probability to measure sampling risk
Identify the relevant population
and evaluate sample results
Determine the relevant sampling unit

Select the appropriate sampling approach Non Statistical (Judgment) - purely

Determine the sufficient sample size uses auditor’s judgment in estimating
Select the representative sample items sampling risks, determining sample
size, and evaluating sample results
Perform testing and evaluate evidence
Evaluate the test results and reach
conclusion
Complete documentation
 Nature Timing Extent
Attributes Variables

100% testing
Statistical Non Statistical Statistical Non Statistical
Specific items
Audit sampling Regular Random Block / cluster
Define the objective (purpose) of the test.

Define the deviation orSequential

misstatement Systematic Haphazard

Discovery
Identify the relevant population Stratified
Determine the relevant sampling unit PPS / VWS
Select the appropriate sampling approach

Determine the sufficient sample size

Select the representative sample items

Perform testing and evaluate evidence

Evaluate the test results and reach
conclusion
Complete documentation
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test. TEST OF CONTROLS
Increase in the auditor’s intended INCREASE
Define the deviation or misstatement reliance on acctg & internal control
systems
Identify the relevant population
Increase in the rate of deviation DECREASE
Determine the relevant sampling unit from the prescribed control
procedure that the auditor is
Select the appropriate sampling approach willing to accept
Determine the sufficient sample size Increase in the rate of deviation INCREASE
from the prescribed control
Select the representative sample items procedure that the auditor expects
to find in the population
Perform testing and evaluate evidence
Increase in the required confidence INCREASE
Evaluate the test results and reach level
conclusion
Increase in the # of sampling units NEGLIGIBLE EFFECT
Complete documentation
in the population
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test. SUBSTANTIVE TESTS
Increase in inherent risk assessment INCREASE
Define the deviation or misstatement
Increase in control risk assessment INCREASE
Identify the relevant population
Increase in use of other substantive DECREASE
Determine the relevant sampling unit procedures directed at the same assertion

Select the appropriate sampling approach Increase in auditor’s required level of INCREASE
confidence
Determine the sufficient sample size
Increase in tolerable error DECREASE
Select the representative sample items
Increase in amount of error the auditor INCREASE
Perform testing and evaluate evidence expects to find

Evaluate the test results and reach Stratification of the population DECREASE
conclusion Number of sampling units in the NEGLIGIBLE EFFECT
Complete documentation population
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test.

Define the deviation or misstatement If item selected is not appropriate,

REPLACE.
Identify the relevant population

Determine the relevant sampling unit

If voided, determine if the voiding is
Select the appropriate sampling approach VALID.
Determine the sufficient sample size

Select the representative sample items If no suitable alternative procedure,

treat as ERROR.
Perform testing and evaluate evidence
Evaluate the test results and reach
conclusion
Complete documentation
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test.

Define the deviation or misstatement If PrEr+AnEr < TE, consider allowance

for sampling risk. The closer to TE, the
Identify the relevant population
more the auditor considers whether it
Determine the relevant sampling unit
is appropriate to obtain additional
Select the appropriate sampling approach evidence.
Determine the sufficient sample size

Select the representative sample items *Note: For TOC, no explicit projection
of errors is necessary.
Perform testing and evaluate evidence
Evaluate the test results and reach
conclusion
Complete documentation
 Nature Timing Extent

100% testing
Specific items
Audit sampling Define the objective (purpose) of the test. • Commonly used projection techniques
Define the deviation or misstatement for substantive tests
▫ Difference estimation
Identify the relevant population
● Appropriate when the misstatement in an
Determine the relevant sampling unit account is not affected by the book value
of the item being examined.
Select the appropriate sampling approach
▫ Ratio estimation
Determine the sufficient sample size ● Is appropriate when the misstatement in
an account is directly proportional to its
Select the representative sample items book value.
Perform testing and evaluate evidence ▫ Mean per unit estimation
Evaluate the test results and reach ● Appropriate when individual populations
conclusion do not have recorded values.
Complete documentation
Procedures when audit sampling is not
used
• Inquiry and observation
• Analytical procedures
• Procedures applied to every item
• Controls without audit trail
 AND NOW…
THE MCQs
1. Audit sampling for substantive tests is appropriate when

a. Tests of details are performed

b. The auditor wants to eliminate sampling risks
c. Analytical procedures are used
d. A population contains small number of large value
items.
2. One of the ways to reduce sampling risk is to

a.use variables sampling rather than attributes

sampling.
b.use an appropriate method of selecting sample
items from the population.
c.Provide, proper supervision, and instruction of
the audit team.
d.Carefully design the audit procedures to be used.
3. Which of the following factors is generally not
considered in determining sample size for a test of
controls?

a. Tolerable rate Inverse

b. Population size
c. Expected population deviation rate Direct
d. Risk of assessing control risk too low Inverse
4. If a selected random number is for a voided
transaction, the transaction should be replaced in the
sample. However, the auditor should first ascertain
that the transaction

a. Is representative of the population.

b. Is for an immaterial amount.
c. Might constitute a control deviation.
d. Has been properly voided.
5. Statistical samples as compared to nonstatistical
samples permit the auditor to

a. eliminate nonsampling errors of every type.

b. obtain smaller sample sizes in all cases.

c. use less complex formulae than those required to evaluate

nonstatistical samples.
d. quantify and control sampling risk.
6. A number of factors influence the sample size for a
substantive test of details of an account balance. All
other factors being equal, which of the following
would lead to a larger sample size

a. Smaller measure of tolerable misstatements

b. Assessing control risk at a low level

c. Smaller expected frequency of misstatements

d. Greater reliance on analytical procedures

7. 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 procedure is called

a. Sampling risk c. Detection risk

b. Non-sampling risk d. Audit risk

8. In which sampling method is the probability of
selecting an item proportional to the size of the
value of the item?

a. Systematic.
b. Probability-proportional-to-size sampling.
c. Difference estimation.
d. Nonstatistical sampling for variables.
9. One of the ways to reduce sampling risk is to

a. Use an appropriate method of selecting sample items from the

population.
b. Provide proper supervision and instruction of the audit team.

c. Carefully design the audit procedures to be used.

d. Use variables sampling rather than attribute sampling.

10. An error that arises from an isolated event that
has not recurred other than on specifically
identifiable occasions and is therefore not
representative of errors in the population.

a. tolerable error c. anomalous error

b. non-sampling error d. sampling error

 11. The final step in the evaluation of audit results
is the decision to

a. Determine the error in each sample.

b. Determine sampling error and calculate the estimated total
population error.

c. Project the point estimate.

d. Accept the population as fairly stated or to require further
action.
12. In performing substantive tests, the auditor is
concerned with two risks or errors of sampling; the
alpha error and the beta error.

a. The beta error is of greater concern to the auditor than the

alpha error

b. The alpha error is of greater concern to the auditor than the

beta error

c. Neither the alpha error nor the beta error need be considered
by the auditor

d. The beta error and the alpha error are of equal importance to
the auditor.
13. If all other factors in a sampling plan are held
constant, changing the measure of tolerable error to a
smaller value would cause the sample size to be:

a. smaller. c. indeterminate.

b. larger. d. unchanged.
14. A sample in which every possible combination of
items in the population has a chance of constituting
the sample is a

a. statistical sample c. random sample

b. representative sample d. judgment sample

15. Which one is not a sample selection method
commonly associated with nonstatistical audit
sampling?

auditor selects items based on a judgmental criteria such as

a. Directed sample selection.likelihood of misstatement, characteristics such as different
time periods, or large dollar amounts.
b. Haphazard sample selection.
c. Probability proportional to size sample selection.
d. Block sample selection.
16. Which of the following sampling methods could be
designed to estimate the peso value of an audit
population?

a. Probability-proportional-to-size sampling.

b. Block sampling.

c. Sampling for variables.

d. Sampling for attributes.

17. The purpose of dollar-value estimation is to

a. Test the reasonableness of a recorded account

balance.
b. Test for the occurrence of one single significant
control error.
c. Estimate an account balance.
d. Estimate the rate of control error in the
population.
18. The auditor increases the expected population
deviation rate. This results in a sample size that is

a. Cannot be determined from the information given.

b. Larger.
c. Smaller.
d. The same size.
19. In comparison with classical variables sampling,
which of the following is an advantage of value
weighted sampling?

a. Value weighted sampling is less likely to overstate the

allowance for sampling risk when errors are found in the
sample.
b. Value weighted sampling automatically results in a stratified
sample.
c. Value weighted sampling is particularly appropriate when
understatement errors are expected.
d. Value weighted sampling results in a smaller sample size if
many differences are expected between audited and recorded
amounts.
20. This involves the application of the procedures to less
than 100% of the items within an account balance or class
of transactions. This enables the auditor to obtain and
evaluate audit evidence about some characteristics of the
selected items in order to form an opinion about the
characteristics of all the items supporting an account
balance or transaction class.

a. Selective testing c. Audit techniques

b. Specific identification d. Audit sampling

21. An auditor examining inventory may appropriately
apply sampling for attributes in order to estimate the

a. Dollar value of inventory.

b. Percentage of slow-moving inventory items.
c. Average price of inventory items.
d. Physical quantity of inventory items.
22. Which of the following statements concerning
sample size is true?

a. The higher the expected occurrence rate, other factors

remaining unchanged, the larger will be the sample size.
b. The lower the acceptable risk of underassessment of control
risk, the smaller will be the sample size.
c. The more critical the attribute being tested, the higher will
be the tolerable occurrence rate set by the auditor, and the
larger will be the sample size.

d. An increase in the tolerable occurrence rate, other factors

remaining unchanged, increases sample size.
23. Other factors remaining constant, audit risk is
increased by an increase in

a. the effectiveness of analytical procedures.

b. the risk of incorrect rejection.
AR IR CR DR
c. materiality.
0.105 0.5 0.7 0.3
d. detection risk. 0.035 0.5 0.7 0.1
0.21 0.5 0.7 0.6
24. A method of sampling in which all the items in the
population are divided into two or more sub-population
is

a. variable sampling
b. attribute sampling
c. stratified sampling
d. divisible sampling
25. In which of the following cases would the auditor
most likely examine 100% of the items in the population
rather than utilize sampling?

a. The amount of dollar misstatements is expected to be high and

tolerable misstatement is high.

b. The amount of dollar misstatements is expected to be low and

tolerable misstatement is low.

c. The amount of dollar misstatements is expected to be high and

tolerable misstatement is low.

d. The amount of dollar misstatements is expected to be low and

tolerable misstatement is high.
26. Which of the following statements regarding
statistical sampling in auditing is true?

a. Inasmuch as audits are test based, generally accepted auditing

standards require the use of statistical sampling methods whenever
the auditor decides to examine only part of a population.

b. Although statistical sampling may be applied to control testing,

it is required for substantive testing purposes.

c. Statistical sampling methods are more appropriate for current

testing when the auditor elects to reprocess transactions, than
when controls are tested by means of document examination.

d. Sampling methods are used by auditors in both control testing and

substantive testing.
27. The use of the ratio estimation sampling technique is
most effective when

a. Large overstatement differences and large understatement

differences exist in the population.
b. Estimating populations whose records consist of quantities, but
not book values.
c. A relatively small number of differences exist in the
population.
d. The calculated audit amounts are approximately proportional to
the client’s book amounts.
Guide…
• Steps for ratio estimation:
• Step 1: Divide the sample's audit value by the sample's book value. The resulting
figure is the ratio of the audit value to the book value
• Step 2: Multiply the ratio (calculated in Step 1) by the book value of the population.
The resulting figure is the implied audit value of the population—

• Steps for difference estimation:

• Step 1. Calculate the difference between the audit value and book value for the
sample
• Step 2. Divide the difference (from Step 1) by the number of accounts int he sample to
get the average difference from the sample
• Step 3. Multiply the average difference (from Step 2) by the number of accounts in the
population
• Step 4. Add the amount calculated in Step 3 to the book value for the population. The
resulting figure is the implied audit value for the population
28. Which of the following statements is correct about
statistical sampling?

a. An estimate of the population standard deviation is required to

use classical variables sampling.
b. Zero balances in the population usually do not require special
consideration when using probability-proportional-to-size
sampling.
c. An assumption of probability-proportional-to-size sampling is
that the underlying accounting population be distributed
normally.
d. A classical variables sample needs to include negative balances
in the sample.
29. A sample in which the characteristics of the
sample are the same as those of the population is a(n)

a. variables sample. c. random sample.

b. attributes sample. d. representative sample.

30. Which of the following sampling plans would be
designed to estimate a numerical measurement of a
population such as peso value?

a. Numerical sampling

b. Sampling for attributes

c. Sampling for variables

d. Discovery sampling
31. The tolerable rate of deviation set by the auditor
for tests of controls depends primarily on which of the
following?

a. The tolerable rate used in audits of other clients in the

same industry.

b. The dollar amount of substantive misstatements.

c. The anticipated cause of the errors.

d. The planned risk of assessing control risk too low.

32. An underlying feature of random sampling is that each

a. Item in the accounting population is randomly ordered.

b. Item must be selected systematically.
c. Item in the accounting population has an opportunity to be
selected.

d. Stratum of the accounting population is given equal

representation in the sample.
33. In making an estimate of the dollar amount of
misstatements on sales invoices using probability-
proportional-to-size sampling, which of the following
is true?

a. The estimate will not be valid if the rate of error found in

the sample is small.

b. The risks of incorrect acceptance and incorrect rejection are

greater than for a classical variables sampling plan.

c. An amount for tolerable misstatement cannot be utilized in a

PPS plan.

d. An invoice with a large balance has a greater chance of being

selected than one with a smaller balance.
34. The tolerable deviation rate has a significant
effect on sample size. The relationship of tolerable
deviation rate to sample size is

a. inverse. c. not determinable.

b. variable. d. direct.
35. In determining the sample size for a test of
controls, an auditor should consider the likely rate
of deviations, the allowable sampling risk, and the

a. Tolerable deviation rate

b. Risk of incorrect acceptance
c. Nature and cause of deviations
d. Population size
36. Establishing tolerable deviation rate requires:

a. auditor judgment.
b. random number tables.
c. a computer program.
d. statistical frequency probability tables.
37. One of the causes of non-sampling error is

a. the use of inappropriate or ineffective audit

procedures

b. failure to draw a random sample

c. failure to draw a representative sample
d. the use of attributes sampling instead of variables
sampling
38. Detection risk may be subdivided into the risk
that analytical procedures and other substantive
procedures will fail to detect a material misstatement
and the allowable

a. risk of incorrect c. audit risk.

acceptance.
b. risk of incorrect d. control risk.
rejection.
39. One of the causes of nonsampling error is

a. the use of inappropriate or ineffective audit

procedures.
b. the use of attributes sampling instead of variables
sampling.
c. failure to draw a random sample.
d. failure to draw a representative sample.
40. In deciding upon the acceptable risk of incorrect
acceptance for an account, an auditor considers each
of the following except

a. Tolerable error.
b. Audit risk.
c. The risk that internal controls fail to detect material
misstatements that have occurred.

d. The risk that analytical procedures and other tests fail to

detect material errors that occur and that are not detected
by internal control.

Audit Risk
RIA =
Inherent Risk x Control Risk x Analytical Procedures Risk
41. Which of the following is an element of sampling
risk?

a. Choosing an audit procedure that is inconsistent with the

audit objective.
b. Failing to detect an error on a document that has been
inspected by the auditor.
c. Failing to perform audit procedures that are required by the
sampling plan.
d. Choosing a sample size that is too small to achieve the
sampling objective.
42. Known error is

a. The projected number of control errors for the

population.

b. The number of control errors found in the sample.

c. The misstatements located in the sampling units tested.
d. The auditor's estimate of total population misstatement.
43. Which of the following best describes sampling
risk?

a. The auditor may select audit procedures that are not

appropriate to achieve the specific objective.

b. An auditor may fail to recognize errors in the documents

examined for the chosen sample.

c. The sample may not be representative of the population.

d. The documents supporting the sample items may not be
available for inspection.
44. The process which requires the calculation of an
interval and then

a. computerized selection c. statistical sampling

b. systematic selection d. random selection

45. The maximum amount of error in a population that
the auditor is willing to accept is referred to as the

a. expected error
b. tolerable materiality
c. tolerable error
d. acceptable risk
46. An important difference between a statistical
sample and a nonstatistical (judgmental) sample is
that with a statistical sample:

a. more accurate results are obtained.

b. no judgment is required, everything is by formula.
c. a smaller sample size can be used.
d. population estimates with measurable reliability can
be made.
47. Which of the following suggests an increase in
sample size?

a. Internal controls in the area of payroll processing are found to

be much stronger than the auditor’s initial assessment.

b. The application of analytical procedures reveals a favorable

sales budget variance that is material and remains unexplained.

c. Tests of internal controls in nearly all transaction cycle

subsets have produced numerous and widespread errors.

d. Study of the business and industry reveals a material decline in

both industry and client revenue during the current year.
48. What is an auditor’s evaluation of a statistical sample for
attributes when a test of 100 documents results in 4 deviations if
tolerable rate is 5%, the expected population deviation rate is
3%, and the allowance for sampling risk is 2%?

a. Accept the sample results as support for planned reliance on the

control because the sample deviation rate plus the allowance for
sampling risk exceeds the tolerable rate.

b. Accept the sample results as support for planned reliance on the

control because the tolerable rate less the allowance for sampling
risk equals the expected population deviation rate.

c. Modify planned reliance on the control because the sample deviation

plus the allowance for sampling risk exceeds the tolerable rate.
d. Modify planned reliance on the control because the tolerable rate plus
the allowance for sampling risk exceeds the expected population
deviation rate.
49. Which of the following statements is true about
nonstatistical sampling in tests of controls?

a. The auditor considers the same parameters when determining a

nonstatistical sample size as when determining a statistical
sample size.

b. Nonstatistical sampling plans provide a quantitative measure

of sampling risk.
c. The calculated nonstatistical sample should never be altered
by the auditor.
d. The auditor’s judgment in nonstatistical sampling is guided
by classical statistical sampling concepts.
50. If all other factors specified in a sampling plan
remain constant, changing the expected population
deviation rate from 1 percent to 2 percent would cause
the required sample size to

a. remain the same. c. decrease.

b. increase. d. become indeterminate.

THANK YOU!