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Audit Sampling

Audit sampling is the process of applying audit procedures to a subset of items to draw conclusions about the entire population, assuming the sample is representative. It can be used for tests of controls and substantive tests, employing methods such as attribute and variable sampling. Risks associated with sampling include sampling risk, which can lead to incorrect conclusions, and non-sampling risk, which pertains to errors regardless of sample size.

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8 views18 pages

Audit Sampling

Audit sampling is the process of applying audit procedures to a subset of items to draw conclusions about the entire population, assuming the sample is representative. It can be used for tests of controls and substantive tests, employing methods such as attribute and variable sampling. Risks associated with sampling include sampling risk, which can lead to incorrect conclusions, and non-sampling risk, which pertains to errors regardless of sample size.

Uploaded by

hik758273
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is AUDIT SAMPLING?

AUDIT SAMPLING involves an


application of an audit procedure to
less than 100% of the items in the
account balance or transaction
class such that all units have a
chance of selection.
IMPORTANCE:
Audit sampling allows the auditor to
draw conclusion about the
characteristics of the population
just by examining sample of
evidence.
ASSUMPTION: Audit sampling is
performed on the
assumption that the
SAMPLE IS
REPRESENTATIVE OF
THE POPULATION,
meaning that the
sample will possess
essentially the same
characteristics as
the population.
AUDIT SAMPLING CAN BE USED WHEN
THERE IS AN AUDIT TRAIL:

1. TEST OF CONTROLS

2. SUBSTANTIVE TESTS – Test of


Details
SAMPLING IN PERFORMING AUDIT TESTS:
ATTRIBUTE SAMPLING is a sampling
plan used to estimate the occurrence
rate. This is generally used when
performing tests of controls to estimate
the rate of deviations from prescribed
internal control policies and procedures.

VARIABLE SAMPLING is a sampling


plan used to estimate a numerical
measurement of a population such as
peso value. This is useful when
performing substantive tests to estimate
the amount of misstatements in the
financial statements.
GENERAL APPROACHES TO AUDIT SAMPLING:
STATISTICAL SAMPLING is a sampling
approach that uses random based
selection of sample; uses the law of
probability to measure sampling risk and
evaluate sample results.

NON-STATISTICAL SAMPLING is a
sampling approach that purely uses
auditor’s judgment in estimating the risk,
determining the sample size and
evaluating sample results; JUDGMENTAL
SAMPLING.
STATISTICAL SAMPLING NON-STATISTICAL
SAMPLING
- Both methods are acceptable.
- Both methods will require auditor’s
judgment.
- Both methods could provide sufficient,
Similarities:
competent evidence.
- Both methods cannot assure that the sample
will be representative of the population.
- Uses law of - Based on auditor’s
probability in judgment.
Differences:
estimating sampling
risk
- Allows measurement - Less costly
of sampling risk
- More efficient sample - easier to apply
- Objective evaluation
Advantages: of sample results
- Objective
measurement of
FACTORS AFFECTING THE DETERMINATION OF SAMPLE SIZE:

TESTS OF CONTROLS SUBSTANTIVE TESTS RELATIONSHIP TO


SAMPLE SIZE
Acceptable risk of Acceptable risk of Inverse
assessing control risk incorrect acceptance
too low
Tolerable deviation rate Tolerable Inverse
error/misstatement
Expected deviation rate Expected error Direct
Variance in the Direct
population
Confidence level Direct
SAMPLE SELECTION Methods:

RANDOM NUMBER SELECTION is a method


of sample selection that selects sample by
matching random numbers (generated by
computer or based on random number table)
with population numbering system like
document number.

SYSTEMATIC SELECTION is a method of


sample selection that uses a fixed interval
(computed by dividing the number of physical
units in the population by the sample size).
HAPHAZARD SELECTION is a method of
sample selection that applies the auditor’s
professional judgment in deciding which items
should be included in the sample without any
conscious bias or special reason for including
or omitting items from the sample.

BLOCK SELECTION selects a group of items


as sampling units rather than individual items.
PROBABILITY PROPORTIONAL TO SIZE is a
method of sample selection that treats each
peso as one sampling unit. In this type of
sampling, the probability of the item to be
selected is directly proportional to its size.

STRATIFICATION/STRATIFIED SAMPLING is
the process of dividing the population into sub-
population in order to a) decrease the effect of
the variance in the population and b) to give
emphasis to material items.
SAMPLING APPLICATIONS:

TESTS OF SUBSTANTIVE
CONTROLS TESTS
 Attribute  Classical Variable
Estimation Sampling
 Sequential a.Ratio Estimation
Sampling
 Discovery b. Difference
Sampling Estimation
c. Mean per Unit
Estimation
 Value weighted
Sampling
RISKS involved:

SAMPLING RISK is the risk that the auditor may draw


erroneous conclusions because the sample is not truly
representative of the population.

NON-SAMPLING RISK is the risk that the auditor may


draw incorrect conclusions even if he will examine the
entire population. It includes all aspects of audit risk
that are not due to sampling.
SAMPLING RISKS IN SUBSTANTIVE TESTS:

INCORRECT ACCEPTANCE – the risk that


the sample supports the conclusion that the
recorded account balance is not materially
misstated when it is, in fact, materially
misstated.

INCORRECT REJECTION - the risk that


the sample supports the conclusion that the
recorded account balance is materially
misstated when, in fact, it is not materially
misstated.
SAMPLING RISKS IN TEST OF CONTROLS:

OVERRELIANCE - the risk that


the sample supports the auditor’s planned
degree of reliance on internal control when
the true operating effectiveness of the
control does not justify such reliance;
Assessing control risk too low.
UNDERRELIANCE - the risk that the
sample will not support the auditor’s
planned degree of reliance on internal
control when the true operating
effectiveness of the control justifies such
reliance; Assessing control risk too high
SAMPLING RISKS:

TYPE 1/ ALPHA RISK - the risk of


incorrect rejection and the risk of assessing
control risk too high relate to the EFFICIENCY
of the audit. This could result to more
procedures to be performed than necessary.
TYPE 2/ BETA RISK - the risk of
incorrect acceptance and the risk of
assessing control risk too low relate to the
EFFECTIVENESS of the audit. This could
potentially result in materially misstated
financial statements from not expanding
audit tests to a necessary level. This type of
risk is of greater concern to the auditor.
-End-

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