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Sampling Approach in Accounting: Audit Sampling

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Sampling Approach in Accounting: Audit Sampling 67

Chapter-8

SAMPLING APPROACH IN ACCOUNTING:

AUDIT SAMPLING
Amar Singh 1*, Bhim Singh2, R. B. Singh3
1 Assistant Professor, Department of Agricultural Statistics, CSSS PG College
(Affiliated to CCS University, Meerut, U.P.), Machhra, Meerut, (U.P.) India
2 Associate Professor, Department of Basic Science, College of Agriculture,
Sardar Vallabhbhai Patel University of Agriculture and Technology, Meerut, (U.P.), India
3 Associate Professor, Department of Statistics, DN college
(Affiliated to CCS University, Meerut, U.P.), Meerut, (U.P.), India.
*Corresponding author: amaras.singhshakya@gmail.com

Abstract
Audit sampling is the utilization of audit procedure to under 100 percent of the complete populace and
every one of the things in the populace have a similar opportunity to be chosen. This is to guarantee that the
things chose address the absolute populace which empowers examiners to make their determination and
offer their viewpoint in light of their foreordained goal. Audit sampling is truly significant in light of the fact
that it doesn't just assist inspectors with social event adequate and fitting audit evidence alludes to data or
information use or gathers by examiners as a component of their review works so they could finish up their
perspective on if budget summaries are ready in all material regard and understanding with the pertinent
monetary revealing systems. Before evaluators could finish up the budget summaries all in all or any part,
they need to ensure that the proof they acquire is adequate enough with proper quality to close. In this
current chapter we have attempted to investigate the inspecting approach in bookkeeping.
Keywords: Audit procedure, audit evidence, budget summaries
Introduction
No cognizant exertion in human culture is stripped of monetary contemplations and examining is no
exemption. There is a developing acknowledgment that the customary way to deal with review is
financially inefficient on the grounds that all endeavours are coordinated to really look at all exchanges
no matter what. This perpetually prompts more accentuation on routine checking, which frequently isn't
required considering the time and the expense in question. With the change for formal inner controls in
the administration of undertakings of associations, the potential outcomes of routine blunders and fakes
have enormously lessened and inspectors frequently 2nd broad routine checking as just a custom since it
only here and there uncovers anything material. Presently the way to deal with review and the degree of
checking are going through an ever-evolving change for additional consideration towards the inquiries of
standards and controls with an abridgement of non-important routine checking. By routine checking we
generally consider broad checking and vouching of all sections.
 68 Recent Advances in Agriculture Sciences

The degree of the checking to be attempted is fundamentally a question of judgment of the evaluator,
there isn't anything legally expressed anyplace which speci?es what work is to be done, the way things
are to be done and how much. It is likewise not mandatory that the evaluator should take on the
inspecting method. What he is to do is to offer his viewpoint and become limited by that. To guarantee
great and sensible norm of work, he ought to take on principles and procedures that can lead him to an
educated proficient assessment. On a thought of this reality, one might say that it is in light of a
legitimate concern for the reviewer that assuming he chooses to frame his viewpoint based on a section
checking, he ought to embrace principles and procedures which are broadly followed and which have a
perceived premise. Since factual hypothesis of examining depends on a scientific regulation, it tends to
be depended upon to a more noteworthy degree than any erratic procedure which needs premise and
adequacy.

Meaning of Audit Sampling

As indicated by Audit sampling, the utilization of review techniques to under 100 percent of things
inside a populace of review importance to such an extent that all inspecting units get an opportunity of
choice to furnish the evaluator with a sensible premise on which to reach inferences about the whole
populace. The goal of the reviewer while utilizing review testing is to give a sensible premise to the
evaluator to reach inferences about the populace from which the example is chosen.
Population
Populace alludes to the whole arrangement of information from which an example is chosen and
about which the auditor wishes to make determinations. The auditor should select sample items in such
a way that the sample can be expected to be representative of the population. This requires that all items
in the population have an opportunity of being selected.
Characteristics of Population
Appropriateness:
The auditor will need to determine that the population from which the sample is drawn is
appropriate for the specific audit objective.
Example: In the event that the auditor's goal was to test for exaggeration of records receivable, the
populace could be characterized as the records receivable posting. Then again, while testing for
misrepresentation of the truth of records payable, the populace wouldn't be the records payable posting,
but instead ensuing distributions, neglected solicitations, providers' assertions, unrivalled getting
reports, or different populaces that would give review proof of misleading statement of records payable.
The individual items that make up the population are known as sampling units. The population can
be divided into sampling units in a variety of ways.
Example: Assuming that the auditor's goal was to test the legitimacy of accounts receivables, the
sampling unit could be characterized as client adjusts or individual client solicitations. The auditor
characterizes the sampling unit to get a proficient and powerful sample to accomplish the specific review
targets. It is important for the auditor to ensure that the population is appropriate to the objective of the
audit procedure, which will include consideration of the direction of testing.
Completeness
The population also needs to be complete, which means that if the auditor intends to use the sample
to draw conclusions about whether a control activity operated effectively during the financial reporting
period, the population needs to include all relevant items from throughout the entire period.
 69

Reliable
When performing the audit sampling, the auditor performs audit procedures to ensure that the
information upon which the audit sampling is performed is sufficiently complete and accurate.
Approaches to Sampling
Audit sampling enables the auditor to obtain and evaluate audit evidence about some characteristic
of the items selected in order to form or assist in forming a conclusion concerning the population from
which the sample is drawn. Audit sampling can be applied using either non-statistical or statistical
sampling approaches.

Statistical sampling is an approach to sampling that has the random selection of the sample items;
and the use of probability theory to evaluate sample results, including measurement of sampling risk
characteristics. A sampling approach that does not have above characteristics is considered
non-statistical sampling.
¡ An Approach to sampling that has the random selection of the sample items.
¡ The use of probability theory to evaluate sample results.
¡ The use of probability theory including measurement of sampling risk characteristics.
It is up to the auditor to decide whether to use a statistical or non-statistical sampling approach, and
sample size is not a valid criterion to differentiate between the two.
Sample must be representative
No matter the approach to sampling, whether non-statistical or statistical, the sample must be
representative. To put it simply, it must be similar to the population as a whole, although not identical. It
must also be large enough to generate meaningful results statistically.
Statistical Sampling-More Scientifc
Audit testing done through this approach is more scienti?c than testing dependent totally upon the
auditor's own judgment since it includes utilization of mathematical laws of likelihood in deciding the
suitable sample size in shifting conditions. Statistical sampling has sensibly wide application where a
populace to be tried comprises of an enormous number of comparative things and more on account of
exchanges including consistence testing, exchange receivables' con?rmation, finance checking, vouching
of solicitations and insignificant money vouchers.
Non-Statistical Sampling
Under this methodology, the example size and it's not entirely set in stone based on the individual
experience and information on the auditor. This approach shares been practically speaking application
for a long time in view of its effortlessness in activity. Customarily, the auditor based on his own
experience will decide the size of the sample and express it in wording that number of pages or individual
records in the buys or deals record to be checked. For instance, March, June and September might be
chosen in year one and various months would be chosen in the following year. An endeavor would be
made to try not to lay out an example of determination many years to keep a component of shock with
regards to what the evaluator will check. It is a typical practice to check enormous number of things
towards the end of the year so the ampleness of removed techniques can still up in the air.
 70

The non-statistical sampling is scrutinized because it is neither target nor scientifc. The normal level
of objectivity can't be guaranteed in non-statistical sampling on the grounds that the gamble of sample
predisposition in choice of test things can't be dispensed with. The closeness of the characteristics
projected by the sample results with that of the entire populace can't be estimated in light of the fact that
the sample has not been chosen as per the mathematical based statistical techniques. Notwithstanding,
it could be expressed that the auditor with his experience and information on the client's business can
assess precisely sufficient the sample fndings to pursue audit choice and the mathematical evidence of
exactness at times might be an extravagance which the auditor can't bear.
The factors that should be considered for deciding upon the extent of checking on a sampling plan
are following:
(i) Size of the organisation under audit.
(ii) State of the internal control.
(iii) Adequacy and reliability of books and records.
(iv) Tolerable error range.
(v) Degree of the desired con?dence.
In the greater part of the conditions, the proof accessible isn't indisputable and the auditor generally
goes ahead with a carefully thought-out plan of action in offering his viewpoint. Indeed, even by
attempted hundred percent checking of the exchanges, the auditor doesn't determine outright
fulfillment. This condition of anxiety drove logical auditor to embrace the factual hypothesis of testing to
determine the fundamental fulfillment about the situation by really taking a look at just a piece of the
absolute populace of sections. Auditors understood that they can infer great fulfillment by attempted a
lot lesser checking by reception of this strategy in the inspecting system. It is a numerical truth that the
example, assuming picked absolutely on an irregular premise would uncover the highlights and
qualities of the populace.
By embracing the sampling technique, the auditor just actually takes a look at a piece of the entire
mass of exchanges. The fulfillment he used to infer before, by actually looking at every one of the
exchanges, can be determined by an example checking gave he can put dependence on the inward
controls and checks inside the client's association since they give the dependability of the records. What
ought to be the degree of alluring checking in a specific matter is for inspector to decide on premise of his
viewpoint about the condition of control in a specific region. Assuming that control is good in its plan and
execution, a lot more modest example can provide the examiner with the important unwavering quality
of the outcome he gets. Then again, if in specific regions controls are slack or not appropriately carried
out, the inspector might need to take a lot bigger sample for obtain palatable outcome.
One more truth about the sampling technique ought to be noted. It can never bring total unwavering
quality; it can't give definitively precise outcomes. It is a course of estimation. It might have some error.
What blunder is passable for a specific matter under assessment involves the singular's judgment in that
specific case.
Example: Any person may consider that in his estimation of stores valuation, an error of 2% may not
be material; he also decides that he needs at least 98% reliability of the result. He is to pick up the
requisite number of items of the stores for reliability of the result. The requisite number he can get from
the random number table. The question of reliability of the result is directly linked with the reliability of
the internal control and of the books and records; when these are satisfactory, lesser degree of reliability
of the sampling estimation may su?ce - if these are not satisfactory, the auditor may have to decide upon
a higher degree of reliability which can only be obtained from a larger sample.
Appropriateness of Sampling Approaches
In statistical sampling, the sample results are measurable as to the adequacy and reliability of the
audit objectives whereas in non-statistical sampling the auditor's opinion determines the sample size
but it cannot be measured how far the sample size would ful?ll the audit objective.
 71

In statistical sampling, the sample results are quantifiable with respect to the sufficiency and
unwavering quality of the review targets while in non-statistical sampling the auditor's view point
decides the sample size however it can't be estimated how far the sample size would ful?ll the audit
objective.
The advantages of statistical sampling may be summarized as follows -
1. The amount of testing (sample size) does not increase in proportion to the increase in the size of the area
(universe) tested.
2. The sample selection is more objective and thereby more defensible.
3. The method provides a means of estimating the minimum sample size associated with a speci?ed risk and
precision.
4. It provides a means for deriving a "calculated risk" and corresponding precision (sampling error) i.e. the
probable difference in result due to the use of a sample in lieu of examining all the records in the group
(universe), using the same audit procedures.
5. It may provide a better description of a large mass of data than a complete examination of all the data, since
non-sampling errors such as processing and clerical mistakes are not as large.
Under some audit circumstances, statistical sampling methods may not be appropriate. The auditor
should not attempt to use statistical sampling when another approach is either necessary or will provide
satisfactory information in less time or with less effort, for instance when exact accuracy is required or in
case of legal requirements etc.
The decision whether to use a statistical or non-statistical sampling approach is a matter for the
auditor's judgment; however, sample size is not a valid criterion to distinguish between statistical and
non-statistical approaches.

Sample Design, Size and Selection of Items for Testing

While planning an audit test, the auditor will consider the reason for the audit strategies and the
attributes of the populace from which the sample will be drawn. The auditor will decide a sample size
su?cient to decrease testing chance to an acceptably low level. The auditor will choose things for the
sample so that each sampling unit in the populace gets an opportunity of determination.
Sample Design
While planning an audit sample, the auditor's thought incorporates the speci?c reason to be
accomplished and the blend of audit methodology that is probably going to best accomplish that reason.
Thought of the idea of the audit proof looked for and conceivable deviation or error conditions or different
attributes connecting with that audit evidence will help the auditor in defining what establishes a
deviation or misquote and what populace to use for sampling. In fulfilling the prerequisite of audit
evidence, while performing audit sampling, the auditor performs audit strategies to acquire evidence
that the populace from which the audit sample is drawn is finished.
The auditor's thought of the reason for the audit method incorporates an unmistakable
comprehension of what establishes a deviation or misquote so all, and just, those conditions that are
pertinent to the motivation behind the audit methodology are remembered for the assessment of
deviations or projection of errors.
Example: In a test of subtleties connecting with the presence of records receivable, for example,
confirmation, payments made by the client before the confirmation date yet got not long after that date
by the client, are not viewed as an error. Additionally, a mis posting between client accounts doesn't
influence the complete records receivable equilibrium.
Thusly, it may not be fitting to look at this as a misquote in assessing the example consequences of
this specific audit technique, despite the fact that it might critically affect different region of the review,
like the appraisal of the gamble of misrepresentation or the ampleness of the recompense for far-fetched
accounts.
 72

In considering the characteristics of a population, for tests of controls, the auditor makes an
assessment of the expected rate of deviation based on the auditor's understanding of the relevant
controls or on the examination of a small number of items from the population. This assessment is made
in order to design an audit sample and to determine sample size.
Example: If the expected rate of deviation is unacceptably high, the auditor will normally decide not
to perform tests of controls.
Similarly, for tests of details, the auditor makes an assessment of the expected misstatement in the
population. If the expected misstatement is high, 100% examination or use of a large sample size may be
appropriate when performing tests of details.
In considering the characteristics of the population from which the sample will be drawn, the auditor
may determine that stratification or value-weighted selection is appropriate.
Stratification and Value-Weighted Selection
In considering the qualities of the populace from which the sample will be drawn, the auditor might
verify that stratification or worth weighted determination technique is suitable. Audit evidence gives
direction to the auditor on the utilization of stratification and worth weighted sampling procedures.
Stratification: Audit efficient might be improved in the event that the auditor stratifies a populace by
separating it into discrete sub-populaces which have a distinguishing trademark. The goal of
stratification is to lessen the inconstancy of things inside every stratum and consequently permit sample
size to be decreased without expanding sampling risk.
While performing trial of subtleties, the populace is frequently stratified by financial worth. This
permits more noteworthy review work to be coordinated to the bigger worth things, as these things might
contain the best expected error with regards to exaggeration. Additionally, a populace might be stratified
as per a specific trademark that shows a higher gamble of error, for instance, while testing the stipend
for dubious records in the valuation of accounts receivable, balances might be stratified by age.
The aftereffects of audit procedures applied to an sample of things inside a stratum must be projected
to the things that make up that stratum. To reach a determination on the whole populace, the auditor
should consider the gamble of material misquote comparable to anything that different layers make up
the whole populace.
Example: 20% of the items in a population may make up 90% of the value of an account balance. The
auditor may decide to examine a sample of these items. The auditor evaluates the results of this sample
and reaches a conclusion on the 90% of value separately from the remaining 10% (on which a further
sample or other means of gathering audit evidence will be used, or which may be considered immaterial).
Assuming a class of exchanges or record balance has been isolated into strata, the misquote is
anticipated for every stratum independently. Extended misquotes for every stratum are then
consolidated while considering the conceivable impact of errors on the complete class of exchanges or
record balance.
Value Weighted Selection
When performing trial of subtleties, it very well might be efficient to distinguish the sampling unit as
the individual money related units that make up the populace. Having chosen specific money related
units from inside the populace, for instance, the records receivable equilibrium, the auditor may then
look at the specific things, for instance, individual adjusts, that contain those financial units. One benefit
of this way to deal with defining the sampling unit is that review exertion is coordinated to the bigger
worth things since they have a more noteworthy possibility of choice, and can bring about more modest
sample sizes.
This approach may be used in conjunction with the systematic method of sample selection and is
most efficient when selecting items using random selection.
 73

Sample Size
The degree of sampling risk that the auditor will acknowledge influences the sample size required.
The lower the gamble the auditor will acknowledge, the more prominent the sample size should be.
The sample size not set in stone by the utilization of a statistically-based formula or through the
activity of expert judgment. There are different factors regularly have on the assurance of sample size.
Whenever conditions are comparable, the impact on sample size of elements will be comparable whether
or not a statistical or non-statistical methodology is picked.
Sample Selection Methods
Sample should be selected in such a manner that it is representative of the population from which the
sample is being selected. It will necessitate that each item in the population has an equal chance of being
included in the sample.

A portion of the significant techniques for choosing the sample are talked about underneath-
Random Sampling
Random selection ensures that all items in the population or within each stratum have a known
chance of selection. It may involve use of random number tables. Random sampling includes two very
popular methods which are discussed below-
Simple Random Sampling
Under this strategy every unit of the entire populace for sample buy or deals receipt has an
equivalent possibility being chosen. The mechanics of determination of things might be by picking
numbers from table of irregular numbers by computers or getting numbers arbitrarily from a drum. It is
viewed as that random number tables are straightforward and simple to utilize and furthermore give
affirmation that the bias doesn't influence the choice. This technique is viewed as suitable gave the
populace to be sampled comprises of sensibly comparative units and fall inside a sensible reach.
Example: The population can be considered homogeneous, if say, trade receivables balances fall
within the range of ` 55,000 to ` 2,25,000 and not in the range between ` 525 to ` 10,50,000.
 74

Stratified Sampling:
This strategy includes partitioning the entire populace to be tried in a couple of independent
gatherings called strata and taking a sample from every one of them. Every stratum is treated as though
it was a different populace and if proportionate of things are chosen from every one of these strata. The
quantity of gatherings into which the entire populace must be not set in stone based on auditor
judgment.
Example: In the above case, trade receivables balances may be divided into four groups as
follows: -
(a) balances in excess of ` 10,00,000
(b) balances in the range of ` 7,75,001 to ` 10,00,000
(c) balances in the range of ` 5,50,001 to ` 7,75,000
(d) balances in the range of ` 2,25,001 to ` 5,50,000
(e) balances ` 2,25,000 and below
From these above groups the auditor may pick up different percentage of items from each of the
group. From the top group i.e. balances in excess of 10,00,000, the auditor may examine all the items;
from the second group 25 per cent of the items; from the third group 10 per cent of the items; and from the
lowest group 2 per cent of the items may be selected.
The reasoning behind the stratified sampling is that for a highly diversified population, weights
should be allocated to reflect these differences. This is achieved by selecting different proportions from
each strata. It can be seen that the stratified sampling is simply an extension of simple random
sampling.
Therefore, we can say that random selection method is applied through random number generators,
for example, random number tables).
Interval Sampling or Systematic Sampling
Systematic selection is a determination technique wherein the number of sampling units in the
populace is separated by the sample size to give a sampling interval, for instance 50, and having decided
a beginning stage inside the ?rst 50, each 50th sampling unit from that point is chosen. Albeit the
beginning stage might be resolved heedlessly, the sample is bound to be really arbitrary assuming that
not entirely set in stone by utilization of a modernized random number generator or random number
tables. While utilizing systematic selection, the auditor would have to discover that sampling units
inside the populace are not organized so that the sampling interval compares with a specific pattern in
the populace.
Example: If in a population of branch sales, particular branch sales occur only as every 100th item
and the sampling interval selected is 100. The result would be that either the auditor would have
selected all or none of the sales of that particular branch.
Monetary Unit Sampling:
It is a kind of significant value-weighted determination wherein sample size, choice and assessment
brings about an end in money related sums.
Haphazard sampling
Haphazard selection, in which the auditor chooses the sample without following an organized
strategy. Albeit no organized strategy is utilized, the auditor would regardless stay away from any
cognizant inclination or consistency (for instance, keeping away from di?cult to find things, or
continuously picking or keeping away from the ?rst or keep going sections on a page) and consequently
endeavour to guarantee that all things in the populace get an opportunity of selection. Haphazard
sampling isn't proper while utilizing statistical sampling.
 75

Block Sampling
This strategy includes selection of a block(s) of coterminous things from inside the populace. Block
selection can't usually be utilized in review inspecting in light of the fact that most populaces are
organized with the end goal that things in a grouping can be anticipated to have comparable qualities to
one another, yet various attributes from things somewhere else in the populace. Albeit in certain
conditions it very well might be a suitable auditor methodology to look at a square of things, it would
seldom be a proper sample selection technique when the auditor plans to draw substantial inductions
about the whole populace in light of the sample.
Example: Take the frst 200 sales invoices from the sales day book in the month of September;
alternatively take any four blocks of 50 sales invoices. Therefore, once the ?rst item in the block is
selected, the rest of the block follows items to the completion.
There is a close similarity between this method and non-statistical sampling. Consequently, it has
similar characteristics, namely, simplicity and economy. On the other hand, there is a risk of bias and of
establishing a pattern of selection which may be noted by the auditees,

Conclusion
‘‘Audit Sampling’’ defines ‘audit sampling’ as utilization of audit systems to under 100 percent of
things inside a populace of audit significance to such an extent that all sampling units get an opportunity
of determination to give the auditor a reasonable basis on which to reach inferences about the whole
populace. The objective of the auditor when using audit sampling is to provide a reasonable basis for the
auditor to draw conclusions about the population from which the sample is selected. Audit sampling can
be applied using either non-statistical or statistical sampling approaches. The factors that should be
considered for deciding upon the extent of checking on sampling plan are size of the organization under
audit, state of the internal control, adequacy and reliability of books and records, tolerable error range
and degree of the desired confidence. The goal of the auditor while utilizing review sampling is to give a
sensible premise to the auditor to make inferences about the populace from which the sample is chosen.
Audit sampling can be applied utilizing either non-statistical or statistical sampling draws near. The
variables that ought to be considered for choosing the degree of minding a sampling plan are size of the
association under audit, condition of the inner control., sufficiency and unwavering quality of books and
records, passable blunder reach and level of the ideal confidence.
Sample ought to be chosen in such a way that it is illustrative of the populace from which the sample
is being chosen. A portion of the sample selection techniques are Random Sampling (Simple/stratified),
Systematic Sampling, Monetary Unit Sampling, Haphazard Sampling, Block Sampling and so forth. The
auditor will perform audit methods, suitable to the reason, on everything chose. The inspector is
additionally expected to extend misquotes for the populace to acquire an expansive perspective on the
size of error yet this projection may not be sufcient to decide a sum to be recorded. The auditor will assess
the aftereffects of the sample; and whether the utilization of audit sampling has given a sensible premise
to decisions about the populace that has been tried.
76

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