Audit in CIS Environment

Audit Sampling
Audit Sampling

The application of audit procedures to less than 100% of the

items within an account balance and class of transactions
such that all sampling units have a chance of selection.

Audit sampling is done in test of control and in substantive

testing of account balances
Steps in Audit
Process
Procedures that do not involves sampling

 Inquiry and observation

 Analytical Procedures

 100% test of the population

Sampling Risk vs Non Sampling Risk

 Sampling Risk - the possibility that the conclusion based on a

sample may be different from the conclusion reached if the
entire population (100% audit) were subjected to the same
audit procedures

 Non Sampling Risk – incorrect conclusions are drawn about

the account balance or class of transactions because of human
error
 Is sampling risk controllable?

Decrease the risk by:

 Increase the sampling size

 Use the appropriate selection method

 Is non - sampling risk controllable?

Decrease the risk by:

 Proper planning (when and how to analyze samples)

 Adequate direction, review, supervision of the audit team (ask

help if needed)
 Sampling Risk

Test of control (Chapter 6)

- Risk of under reliance (alpha risk)
- Risk of over reliance (beta risk)

Substantive test (Chapter 8 )

- Risk of incorrect rejection (alpha risk)
- Risk of incorrect acceptance (beta risk)
Basic Steps in Audit Sampling
Step 1: Define the Objective

Step 2: Determine the procedure

Step 3: Determine the sample size

Step 4: Select the sample

Step 5: Apply the procedures

Step 6: Evaluate the sample results

 General Approaches to Audit Sampling:
Non-statistical and statistical sampling
 Statistical Sampling
- applies mathematical rules (statistics) so that the auditor can
quantify sampling risk in planning the sample and evaluate sample
results.
- random based selection

 Non-Statistical Sampling
-purely uses auditor’s judgement in estimating sampling risk ,
determining the sample size and evaluating the sample results
 Non-statistical and statistical sampling - Test of Controls

 Statistical Sampling
 Random Number Selection
 Systematic Selection

 Non-Statistical Sampling
 Haphazard Selection

 Other Sampling Applications

 Sequential Sampling
 Discovery Sampling
 Determination of Sample Size for Internal Control testing

Three factors affecting the determination of sampling size for test of

control

a. Acceptable Sampling Risk (inverse with Sample size)

b. Tolerable Deviation Rate (inverse with sample size)

c. Expected Deviation Rate (direct with sample size)

Evaluate the sample results –test of Control

1. Determine the sample deviation rate (actual deviation rate)

Sample deviation rate = #of Deviation/ Sample Size

2. Compare the sample deviation rate with the tolerable deviation

rate and draw an overall conclusion about the population,
Sampling for Substantive test

2 types of Substantive Testing

 Substantive Analytical Procedures

 Test of Details
a. Test of Details of Balances
b. Test of Details of Transactions
Basic Steps in Audit Sampling - Substantive Testing

Step 1: Define the Objective

Step 2: Determine the procedure

Step 3: Determine the sample size

Step 4: Select the sample

Step 5: Apply the procedures

Step 6: Evaluate the sample results

 Determination of Sample Size for Substantive Testing

Three factors affecting the determination of sampling size for

sunstantive test
a. Acceptable Sampling Risk (inverse with Sample size)

b. Tolerable Misstatements (inverse with sample size)

c. Expected Misstatement(direct with sample size)

d. Variation in the population (direct with sample size)

 Non-statistical and statistical sampling - Substantive test

 Statistical Sampling
 Stratified Sampling
 Value Weighted Selection (Probability proportional to size
sampling) or Monetary Unit Sampling (MUS)
Basic Steps in Audit Sampling
Step 1: Define the Objective

Step 2: Determine the procedure

Step 3: Determine the sample size

Step 4: Select the sample

Step 5: Apply the procedures

Step 6: Evaluate the sample results

Evaluate the sample results - Substantive Test

1. Project the misstatement in the population (projected

misstatements)

a. Ratio Estimation
b. Difference Estimation

2. Compare the projected misstatements with tolerable

misstatements and draw and overall conclusion