Chapter 8

Audit Sampling: An Overview and Application to Tests of Controls.

The objective of this chapter
v it may be possible for the independent auditor to examine all of the records during the
period. However, given the size and complexity of most entities needing a financial
statement audit, it is not economical to examine all the accounting records and
supporting documents. Auditors, therefore often find it necessary to draw conclusions
about the fairness of financial statement assertions based on examinations of samples
of the records and transactions As a result, the auditor provides
reasonable, not absolute, assurance that the financial statements are fairly presented.
Accepting some uncertainty is the trade-off between the cost of examining all the data and
the cost of making an incorrect decision based on a sample of the data.
Audit sampling & sampling risk definitions
• Audit sampling is defined as the selection and evaluation of less than 100 percent of the
items in a population of audit relevance selected in such a way that (depend on)the
auditor expects the sample to be representative of the population and thus likely to
provide a reasonable basis for conclusions about the population.

• Sampling risk refers to the possibility that the sample drawn is not representative of
the population and that, as a result, the auditor will reach an incorrect conclusion/
opinion about the account balance or class of transactions based on the sample.
 MCQ
1) For which of the following audit tests would an auditor most likely use attributes sampling?
A) Making an independent estimate of the amount of LIFO inventory.
B) Examining invoices in support of the valuation of fixed asset additions.
C) Selecting accounts receivable balances for confirmation.
D) Inspecting employee time cards for proper approval by supervisors.
Answer D)inspecting employee time cards for proper approval by supervisors
Types of Statistical Sampling Techniques
Auditors use attribute sampling inspecting employee time cards for proper approval by supervisors
Auditors typically use attribute sampling to test internal controls.
 for more explanation
For more explanation;
1- attribute sampling
Attribute sampling means that an item being sampled will possess certain attributes. An auditor selects a certain
number of records to estimate how many times a certain feature will show up in a population. When using
attribute sampling, the sampling unit is a single record or document. Auditors typically use attribute sampling to test
internal controls.
2-Monetary-unit sampling: uses attribute-sampling theory and techniques to estimate the monetary amount of
misstatement for a class of transactions or an account balance. Monetary-unit sampling builds upon attribute-sampling
theory to express a conclusion regarding the monetary amount of estimated misstatement in an account.

3- While auditors sometimes use variables sampling to estimate the dollar value of a class of transactions or account
balance, it is more frequently used to determine whether an account is materially misstated.
 Continue….
For more explanation;
1- attribute sampling

Attribute sampling means that an item being sampled will possess certain attributes. An auditor selects a certain number of records to estimate how many times a certain

feature will show up in a population. When using attribute sampling, the sampling unit is a single record or document. Auditors typically use attribute sampling to test internal

controls.

how to calculation attribute sampling ;

• the population size has little /small (population size less than 1000 items) hasn’t effect on the sample size.

In case of population size greater than 1000 items

for example employee time cards 3000 items
desired confidence level 95% tolerable deviation rate 5%
expected population deviation rate 0.75%

What is a sample size ??? 93 from below table (95% desired confidence level)
 Continue…..
• Number of deviation in population 2
• Sample size 93 from previous table
• tolerable deviation rate (normal) 6.0%
• Sample deviation rate 2.2% ( ( 2/93) *100%) what is a computed deviation rate??
raterateComputed upper deviation rate 7.7% from table below;
 Continue….
• Comparison between tolerable deviation rate ( allowed) 6.0% and Computed upper
deviation rate ( actual)7.7% :
vtolerable deviation rate ( allowed) 6.0% is less than computed deviation rate 7.7%
• The auditor doesn’t support reliance on internal control
 MCQ
2) Harvey Jones, CPA, uses statistical sampling to test control procedures. What is a benefit of using
statistical sampling?
A. It provides a means of mathematically measuring the sampling risk that result from examining only a
part of the data.
B. It eliminates the use of judgment required of Jones because the AICPA has established numerical
criteria for this type of testing.
C. It increases Jones' knowledge of the entity's prescribed procedures and their limitations.
D. It is required by generally accepted auditing standards.
Answer A What is a benefit of using statistical sampling?
It provides a means of mathematically measuring the sampling risk that result from examining
only a part of the data.
 MCQ
3) In determining the sample size for a test of controls, an auditor should consider the expected deviation
rate, desired confidence level, and the
A. tolerable deviation rate.
B. risk of incorrect acceptance.
C. nature and cause of deviations.
D. population size.

Answer A. Tolerable deviation rate

To Determine sample size
1- expected deviation rate is given
2- desired confidence level 95% or 90% 3- tolerable deviation rate rates 2% 3% and so on
look at slides no 6
 MCQ
• 4) In attributes sampling, population size has little or no effect on sample size once the population
exceeds approximately
A. 1,000.
B. 5,000.
c. 100,000.
D. 1,000,000.

Answer A 1000
Because of small population size, the population size has little /small (population size less than 1000
items) hasn’t effect on the sample size.
 MCQ
5)In which of the following cases would the auditor be most likely to conclude that all of the items
in an account under consideration should be examined rather than tested on a sample basis?
A. Tolerable deviation is large and expected deviation is low.
B. Tolerable deviation is small and expected deviation is high.
C. Tolerable deviation is large and expected deviation is high.
D. Tolerable deviation is small and expected deviation is low.
Answer A Tolerable deviation is large and expected deviation is low.

Through question 1 (expected population deviation rate 0.75% low and tolerable deviation
rate 6.0% large
In this case leading to computed upper deviation rate 7.7%
Continue…..
6) For attributes sampling, of the three factors that enter into sample size determination,
which two factors can the auditor adjust to reflect the importance of the control?
• A. Tolerable deviation rate and confidence level.
• B. Expected deviation rate and confidence level.
C. Population size and tolerable deviation rate.
D. Tolerable deviation rate and expected deviation rate.
Answer A. Tolerable deviation rate and confidence level.
MCQ
7) Auditors who prefer statistical to no statistical sampling believe that the principal
advantage of statistical sampling flows from its unique ability to
A. define the precision required to provide audit satisfaction
B. mathematically measure uncertainty.
C. establish conclusive audit evidence with decreased audit effort.
D. promote a more legally defensible procedural approach.

Answer B mathematically measure uncertainty.