Audit Sampling For Tests of Controls and Substantive Tests of Transactions

Chapter
Chapter15
15
Audit
AuditSampling
Samplingfor
for
Tests
TestsofofControls
Controls
and
andSubstantive
Substantive
Tests
Testsof
of
Transactions
Transactions
Copyright © 2014 Pearson Education

Explain the concept of representative
sampling.
Distinguish between statistical and
nonstatistical sampling and between
probabilistic and nonprobabilistic sample
selection.
Select representative samples.
Prepare the post-closing trial balance
15-2
Define and describe audit sampling for
exception rates.
Use nonstatistical sampling in tests of
controls and substantive tests of
transactions.
Define and describe attributes sampling and
a sampling distribution.
Use attributes sampling in tests of controls
and substantive tests of transactions.
15-3
1
Explain the concept of
representative sampling.
15-4
A representative sample is one in which
the characteristics in the sample of audit
interest are approximately the same as
those of the population.
In practice, an auditor can increase the

likelihood of a representative sample by
using care in designing the sampling
process and selection, and evaluating
the results.
15-5
Sampling risk is the risk that an auditor
reaches an incorrect conclusion because
the sample is not representative of the
population.
Nonsampling risk is the risk that the

Auditor reaches an incorrect conclusion
for any reason not related to sampling risk.
15-6 Copyright © 2014 Pearson Education

Sampling Risk Meter
Step 1 Step 2
Use
Adjust appropriate
sample sample
size selection
method
15-7
2
Distinguish between statistical and nonstatistical
sampling and between probabilistic and
nonprobabilistic sample selection.
15-8
Similarities of both approaches:
Step 2
Step 1 Select the Step 3
Plan the sample and Evaluate the
sample perform the results
tests
15-9
Differences in approach:
Statistical sampling allows the quantification

of sampling risk in planning the sample (Step 1)
and evaluating the results (Step 3)
In nonstatistical sampling those items that

the auditor believes will provide the most
useful information are selected
15-10
Probabilistic sample selection is a method
of selecting a sample such that each
population item has a known probability
of being included in the sample.
Nonprobabilistic sample selection is a

method in which the auditor uses professional
judgment rather than probabilistic methods.
15-11
Nonprobabilistic selection methods:
1. Block sample selection

2. Haphazard sample selection
15-12
Probabilistic selection methods:
1. Simple random sample selection

2. Systematic sample selection
3. Probability proportional to size sample selection
15-13
Block sample selection is the selection
of several items in sequence.
Haphazard sample selection is the

selection of items without any conscious
bias on the part of the auditor.
15-14
3
Select representative samples.
15-15
A simple random sample is one in which
every possible combination of elements
in the population has an equal chance
of constituting the sample.
 Random number tables
 Computer generation of random numbers
offers several advantages
time savings
reduced risk of error
automatic documentation
15-16
 Random number tables
 Computer generation of random

numbers offers several advantages
•time savings
•reduced risk of error
•automatic documentation
15-17
Systematic sample selection:
The auditor calculates an interval and

then selects the items for the sample
based on the size of the interval.
The interval is determined by dividing

the population size by the number of
sample items desired.
15-18
Probability proportional to size:
A sample is taken where the probability

of selecting any individual population item
is proportional to its recorded amount (PPS).
Divide the population into subpopulations and

take larger samples from the subpopulations
with larger sizes.
15-19
4
Define and describe audit
sampling for exception rates.
15-20
The occurrence rate, or exception rate,
is the percent of items in the population
containing the characteristic or specific
attribute of interest to the total number
of population items.
15-21
Following are types of exceptions in
populations of accounting data:
1. Deviations from client’s established controls

2. Monetary misstatements in populations
of transaction data
3. Monetary misstatements in populations of
account balance details
15-22
5
Use nonstatistical sampling in
tests of controls and substantive
tests of transactions.
15-23
Terms related to planning:
 Characteristic or attribute
 Acceptable risk of Overreliance (ARO)
 Tolerable exception rate (TER)
 Estimated population exception rate (EPER)
 Initial sample size
15-24
Terms related to evaluating results:
 Exception
 Sample exception rate (SER)
 Computed upper exception rate (CUER)
15-25
Step 1 Step 2 Step 3
State the Decide Define
objectives whether attributes
of the audit and
audit test. sampling exception
applies. conditions
Step 5
Step 4
Define the Define the
population sampling
unit
15-26
Step 6 Step 7
Specify
Specify
acceptable
the
risk of
tolerable
overreliance
exception
rate.
Step 8
Step 9
Estimate the
Determine
population
the initial
exception
sample size
rate.
15-27
Step 11
Step10
Select the Perform the
sample audit
procedures
15-28
Step 12
Step 14
Generalize Step 13
Decide the
from the Analyze
acceptability
sample to exceptions
of the
the
population
population
15-29
15-30
15-31
Effect on initial
Type of change sample size
Increase acceptable risk of
overreliance
Increase tolerable risk rate
Increase estimated population
exception rate
Increase population size (minor)
15-32
 Revise TER or ARO
 Expand the sample size
 Revise assessed control risk
 Communicate with the audit

committee or management
15-33
To/From Plan the sample
Step 6 (Steps 1-9)
Compare
Select the sample

(Step 10)
Computed Number of
upper Perform the tests exceptions
exception in sample
(Step 11)
Step 12
rate and actual

sample size
From
Evaluate the results

To Step 14 (Steps 12-14) To Step 12
15-34
6
Define and describe attributes sampling and
a sampling distribution.
15-35
The statistical sampling method most
commonly used for tests of controls
and substantive tests of transactions
is attributes sampling.
15-36
A frequency distribution of the results
of all possible samples of a specified size
that could be obtained from a population
containing some specific parameters.
Attributes sampling is based on the

binomial distribution.
15-37
15-38
7
15-39
Use of the tables:
i. Select the table corresponding to the ARO

ii. Locate the TER on the top of the table
iii. Locate the EPER in the far left column
iv. Read down the appropriate TER column until
it intersects with the appropriate EPER row
in order to get the initial sample size
15-40
Effect of population size:
 Population size is a minor consideration

in determining sample size
 Representativeness is ensured by the sample

selection process more than by sample size
15-41
 Select the sample
Perform the audit procedures
Evaluate the results
15-42
15-43
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Printed in the United States of America.
15-44

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Chapter

Copyright © 2014 Pearson Education

In practice, an auditor can increase the

Nonsampling risk is the risk that the

15-6 Copyright © 2014 Pearson Education

Statistical sampling allows the quantification

In nonstatistical sampling those items that

Nonprobabilistic sample selection is a

1. Block sample selection

1. Simple random sample selection

Haphazard sample selection is the

 Computer generation of random

The auditor calculates an interval and

The interval is determined by dividing

A sample is taken where the probability

Divide the population into subpopulations and

1. Deviations from client’s established controls

 Expand the sample size

 Revise assessed control risk

 Communicate with the audit

Select the sample

rate and actual

Evaluate the results

Attributes sampling is based on the

i. Select the table corresponding to the ARO

 Population size is a minor consideration

 Representativeness is ensured by the sample

Perform the audit procedures

Evaluate the results

All rights reserved. No part of this publication may be reproduced,

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