AUDIT SAMPLING

AUDIT SAMPLING
The professional standards require the auditor to obtain sufficient
appropriate evidence to be able to draw reasonable conclusions on
which to base the audit opinion. In forming on the opinion on the
financial statements, the auditor does not normally examine all
evidence available. Auditor usually draw conclusions about the
account balance or transaction class by examining only a sample of
evidence.
 UNDER PSA 530 DEFINES AUDIT
SAMPLING AS,
“The application of audit procedures to less of the items
within an account balance or class of transactions such
that all sampling units have a chance of selection”
Not all testing procedures performed by
auditors involve audit sampling.
 RISK IN SAMPLING
When performing audit procedures, the auditor is faced with
an uncertainly of not detecting material errors in an account
balance or class transactions. This uncertainly arises because
of sampling and non-sampling risks.
 SAMPLING RISK
Sampling risk refers to the possibility that the auditor’s
conclusion, based on a sample. May be different from the
conclusion reached if the entire population were subjected to
the same audit procedures.
 TWO TYPES OF SAMPLING
RISK THAT COULD
ADVERSELY EFFECT AUDIT
ALPHA RISK is the risk the auditor will conclude:
In the case of test of control, that internal control is not reliable
when in fact it is effective and can be relied upon (risk of under
reliance)
In the case of substantive test, that material misstatement exist
in an account balance or transaction class when in fact such
misstatement does not exist (risk of incorrect rejection).
BETA RISK is the risk the auditor will conclude,
In the case of test control, that the internal control is reliable when
in fact it is not effective and cannot be relied upon ( risk of over
reliable) or
In the case of substantive test, the material misstatement does not
exist when in fact material misstatement does exist (risk of incorrect
acceptance).
 NON-SAMPLING RISK
Non-sampling risk refers to the risk that the auditor may draw
incorrect conclusions about the account balance or class of
transaction because of HUMAN ERROR such as, application
of inappropriate audit procedures, failure to recognize errors in
the sample tested, and misinterpretations of evidence obtained.
 CONTROLLING THE RISKS
Accordingly, auditors do not normally attempt to eliminate sampling risk.
Instead, auditors control sampling risk by
 Increase the sample size; and
 Using an appropriate sample selection method.
Non-sampling risk, on the other hand, is something that cannot be eliminate even
if the auditor examines the entire population. This risk, however, can be
minimize by
Proper planning; and
Adequate direction, review, and supervision of the audit team.
 GENERAL APPROACHES TO
AUDIT SAMPLING
Statistical sampling is a sampling approach that
 Uses random based selection of sample; and
 Uses statistics (law of probability) to measure sampling risk and evaluate sample
results.
Non-statistical sampling, in contrast, is a sampling approach that purely uses auditor’s
judgement in estimating sampling size, and evaluating sample results.
 Thus, statistical sampling helps the auditor to:
 Design an efficient sample;
 Measure the sufficiency of evidence obtained; and
 Objectively evaluate the sample results.
 AUDIT SAMPLING PLANS
Audit sampling may be used when performing tests of controls or
substantive tests. When statistical sampling is used, the auditor may use
either attribute or variable sampling plan.
ATTRIBUTE SAMPLING
This is a sampling plan used to estimate the frequency of occurrence of a certain
characteristic in a population (occurrence rate).
VARIABLE SAMPLING
This is a sampling plan used to estimate a numerical measurement of a population such
as peso value.
BASIC STEPS IN AUDIT
SAMPLING
6. EVALUATE THE RESULTS
5. APPLY THE PROCEDURES
4. SELECT THE SAMPLE
3. DETERMINE THE SAMPLE SIZE
2. DETERMINE THE PROCEDURE
1. DEFINE THE OBJECTIVE
 SAMPLING FOR TESTS OF
CONTROLS
Audit sampling for tests of control is generally appropriate when application of the control
leaves evidence of performance. For those controls that leave no documentary evidence of
performance, non-sampling procedures, such as inquiries and observation, would be more
appropriate.
DETERMINATION OF SAMPLE SIZE
There are three factors affecting the determination of sample size for test of controls. These
are the:
• Acceptable sampling risk;
• Tolerable deviation rate; and
• Expected deviation rate
Sample selection method
The auditor should select items for the sample with the expectation that all sampling
units in the population have a chance of selection. PSA 530 has identified three principal
methods of selecting samples namely, (a) random number selection, (b) systematic
selection, and (c) haphazard selection.
Evaluation of results
When evaluating sample results, both the qualitative and the quantitative factors of
deviations should be considered. Here are some general guidelines that may be used when
evaluating sample results foe tests of controls.
1. Determine the sample deviation rate
2. Compare the sample deviation rate with the tolerable deviation rate and draw an
overall conclusion about the population.
OTHER SAMPLING APPLICATION FOR
TEST OF CONTROLS (OSATC)
Sequential Sampling
Sequential sampling can be used as an alternative form of testing
control when an auditor expects very few deviations within the
population.
Discovery Sampling
This form of attribute sampling is most appropriate when no
deviations are expected in the population and therefor even one
deviation would cause concern.
SAMPLING FOR SUBSTANTIVE TESTS

Substantive tests are concerned with the amount reported in the

financial statements and are of two types; substantive analytical
procedures and tests of details. Substantive analytical procedures
are performed by comparing the financial statements with the auditor’s
expectations and these procedures do not involve sampling.
Determination of sample size
When determining sample size for substantive test, the following
factors must be considered
1. Acceptable sampling risk
2. Tolerable misstatement
3. Expected misstatement
4. Variation in the population
Sample Selection Method
Stratified sampling
Value weighted selection
 EVALUATING THE RESULTS

1. Project the misstatements to the population

Projecting misstatements can be accomplished using:
a. Ratio estimation; or
b. Difference estimation
2. Compare the projected misstatements with the tolerable misstatements
and draw an overall conclusion.