AUDIT SAMPLING – ISA 530

AUDIT SAMPLING

• The application of audit procedures to

less than 100% of items within a
population of audit relevance such that
all sampling units have a chance of
selection in order to provide the auditor
with a reasonable basis on which to draw
conclusions about the entire population.
 SAMPLING RISK
• Sampling risk is the risk that the auditor’s
conclusions based on a sample may be
different from the conclusion if the entire
population were the subject of the same audit
procedure.
• Non-sampling risk is the risk that the auditor
forms the wrong conclusion, which is
unrelated to sampling risk. E.g. where the
auditor adopts inappropriate audit
procedures, or does not recognise a control
deviation.
 AUDIT CONFIDENCE

• Audit Confidence is measured as 100% minus

Audit Risk.
 Example
• Assume that auditors who are auditing a company
aim to ensure that there is no more than 5% audit
risk that their opinion on the financial statements
is incorrect i.e. they are ensuring that they are 95%
certain that their opinion on the financial
statements is correct (i.e. at 95% confidence level).
It implies that we can never be 100% sure of any
conclusion. The 5% is the audit risk and in this
case, it means that the auditors accept that 5 in
every 100 reports issued may be incorrect.
 AUDIT RISK

• Audit risk consists of three components

multiplied together i.e. INHERENT RISK X
CONTROL RISK X DETECTION RISK = AUDIT
RISK i.e. IR X CR X DR = AR
 Types of Selection Methods

ISA 530 recognises that there are many methods

of selecting a sample, but it considers five
principal methods of audit sampling as follows:
•random selection
•systematic selection
•monetary unit sampling
•haphazard selection, and
•block selection.
Example of MUS
•You are auditing trade accounts payable. Total
trade account payables is $500 000 and
materiality is $50 000. You will select balances
containing the 50 000th $1 from the ledger
below.
 BALANCE CUMULATIVE BALANCE SELECTED
A $30,000 $30,000
B $35,000 $65,000 YES
C $45,000 $110,000 YES
D $52,000 $162,000 YES
E $13,000 $175,000
F $50,000 $225,000 YES
G $23,000 $248,000
H $42,000 $290,000 YES
I $47,000 $337,000 YES
J $54,000 $391,000 YES
K $17,000 $408,000 YES
L $80,000 $488,000 YES
M $12,000 $500,000 YES
$500,000
 STATISTICAL AND NON-
STATISTICAL SAMPLING
• Statistical sampling involves the use of
mathematical procedures such as probability
theory, to draw conclusions about the
population. Non statistical techniques rely on
the auditor’s judgment to draw conclusions.
 STEPS INVOLVED IN SAMPLING

• Sample Design
• Selection of the Sample
• Evaluation of the Sample
 TOLERABLE ERROR

• Tolerable error is considered during the

planning stage and, for substantive
procedures, is related to the auditor’s
judgment about materiality. The smaller the
tolerable error, the greater the sample size
will need to be.
 EXPECTED ERROR

• Larger samples will be required when errors

are expected than would be required if none
were expected in order to conclude that the
actual error is less than the tolerable error. If
the expected error rate is high then sampling
may not be appropriate and auditors may
have to examine 100% of a population.
 EVALUATION OF TEST RESULTS
• Analyze any errors
• Project the errors
• Re-assess the sampling risk.

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