Introduction..

Auditors require reliable audit evidence from

which they can draw reasonable conclusions.
An auditor can apply sampling in carrying out
both compliance procedures to review and
evaluate the effectiveness of the internal
Control System and substantive procedures to
obtain evidence regarding the completeness,
accuracy, and validity of the data.
 Key definiton:

Audit sampling is an application of audits in

which less than 100% of the total items within
the population of items are selected to be
audited. It is an auditing technique that allows
auditors to issue audit opinions without having
to audit every single item and transaction (ISA
530:1 for Audit Sampling)
 Importance of audit sampling
• Audit sampling is important because it
provides information on:
– How many items to examine
– Which items to select
– How sample results are evaluated and
extrapolated to the population
Basic terminologies relating to
sampling
 Population: Entire set of data from which sample is
selected and about which auditor wishes to draw
conclusions.
 Stratification: The process of dividing populations
into sub-Population each of which is a group have
sampling units of similar characters.
 Sample size: Number of an entity considered as
representative of the real population for that specific
study.
Cont..

 Expected error is the amount of error in the

sample size that you plan for and expect.
 Tolerable error refers to the maximum
number of client errors in a sample size that
auditor prepared to accept and still conclude
that he/she achieved the audit objectives.
 Need for Sampling

• The process of using auditing procedures to less

than 100 percent of various items in a
company's account balance, enables each unit
(assertion) an equal opportunity of being
selected. Thus able to gather enough evidence
to conclude an audit opinion for an audit work.
Needs for.....
• It is used to conduct tests of control and
substantive test
• Audit sampling helps auditors do their audit work
at a given period of time. It is possible for an
auditor to make details examinations of all the
items being examined.
• To gather/get the evidence from the audit
procedures being performed. Sampling is only
the method (efficient) or sources of the evidence.
• To detect errors and any material misstatements.
• To show or a s prove that the auditor has done
their work.
 Types of audit sampling

• There are two general approaches to audit

sampling: Non-statistical and statistical.
• Both approaches require that the auditor use
professional judgment in planning, performing,
and evaluating a sample and
• In relating the audit evidence produced by the
sample to other audit evidence when forming a
conclusion about the related account balance
or class of transactions.
Cont´d
Statistical sampling – An approach to sampling
that has the following characteristics:
i.Random selection of the sample items; and
ii.The use of probability theory to evaluate sample
results, including measurement of sampling risk.
A sampling approach that does not have
characteristics (i) and (ii) is considered Non-
statistical sampling.
 Sample Design
The significance of the sample to an overall audit
objective will affect the sample design, as will the
auditor’s knowledge of the area under
consideration.
An auditor may decide to use Audit sampling in
performing engagement, especially when:-
designing and selecting the audit sample,
performing test of controls, test of
details, and
evaluating the results from the sample
 Sampling Risk

• Sampling risk is the probability that the auditor has

reached an incorrect conclusion because audit
sampling was used rather than 100 per cent
examination (i.e. correctly chosen sample was not
representative of the population).
• Sampling risk arises from 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
procedure.
Cont...
Types
 The risk the auditor will conclude, in the
case of a test of controls, that controls are
more effective than they actually are or in
the case of a test of details, that a material
error does not exist when in fact it does.
 This type of risk affects audit effectiveness
and is more likely to lead to an
inappropriate audit opinion
Cont…
 The risk the auditor will conclude, in the case of a test of
controls, that controls are less effective than they actually
are or in the case of a test of details, that a material error
exists when in fact it does not.
 This type of risk affects audit efficiency as it would usually
lead to additional work to establish that initial conclusions
were incorrect.
 Non-sampling risk

• The risk that the auditor reaches an erroneous

conclusion for any reason not related to
sampling risk (anomalies).
• Examples of Non-sampling risk include use of
inappropriate audit procedures, or
misinterpretation of audit evidence and
failure to recognize a misstatement or
deviation.
 Sampling Methods

Methods of sampling in accordance with ISA 530

Audit Sampling and other means of testing.
Random selection.
Ensures each item in a population has an equal
chance of selection, for example, by using
random number generators or tables.
Cont...
Systematic selection.
This involves having a constant sampling
interval, such as every 10th item being
selected, the starting point for testing is
determined randomly.
Monetary Unit Sampling
This is a type of value-weighted selection in
which sample size, selection and evaluation
results in a conclusion in monetary amounts
Cont..

The steps involved in monetary unit (MUS)

sampling are to:
determine a sample size
select the sample items
perform the audit procedures
evaluate the results and arriving at a
conclusion about the population.
 Cont..
Haphazard selection
• The auditor selects the sample without
following a structured technique. The auditor
must ensure that no conscious bias or
predictability arises and this method is not
appropriate when using statistical sampling.
• Care must be taken by the auditor to avoid
any conscious bias or predictability.
Cont..

Block selection
• This involves selection of a block(s) of
continuous items from within the population.
• Block selection cannot ordinarily be used in
audit sampling because most populations are
structured such that items in a sequence can
be expected to have similar characteristics to
each other, but different characteristics from
items elsewhere in the population.
Cont..
• The above sampling methods can be
summarized into statistical and non-statistical
sampling as follows:
 Design the sample size.
• Sample items should be selected in such a way
that the sample can be expected to be
representative of the population.
• When designing an audit sample, the auditor
shall consider the objectives of the audit
procedure and the attributes of the population
from which the sample will be drawn.
• The auditor ordinarily considers what
conditions constitute an error by reference to
the objectives of the audit procedure.
• Under paragraph 35 of Auditing Standard, the auditor
needs to first consider the specific objectives to be
achieved and the combination of audit procedures
which is likely to best achieve those objectives.
• Consideration of the nature of the audit evidence
sought and possible error conditions or other
characteristics relating to that audit evidence will
ordinarily assist the auditor in defining what
constitutes an error and what population to use for
sampling.
The following assessments are ordinarily useful
for designing an audit sample and in determining
sample size.
(i). Asses Control Risk (CR)
(ii). Set Detection Risk (DR)
(iii). Select planning materiality (PM)
(iv). Select appropiate population for testing
(v). Define expected rate of error for test, set
tolerance error level and Confidence level
required.
 Evaluate Sample Test Results

• When testing controls. An auditor will consider

whether the result of their test applied to a sample
provide evidence that the control is effective within
the selected population.
• When conducting test of transaction/balance
(substantive) , an auditor will consider whether the
results of their test applied to a sample provide
evidance that the class of transaction or account
balance is fairly stated.
 What if the auditor finds there is an error?
If material error exists in the accounting records
or financial statements, it must be the result of
one or more of the following factor.
a)A large number of small error – should be
detected by representative sampling.
b)Few large error – should be detected by
selecting sampling.
c)A combination of (a) and (b) – both sample
types will be needed.
Cont´d
If the auditor concludes that audit sampling has
not provided a reasonable basis for conclusions
about the population that has been tested, the
auditor may.
Request management to investigate
misstatements that have been identified and the
potential for further misstatements and to make
any necessary adjustments;
Tailor the nature, timing and extent of those
further audit procedures to best achieve the
required assurance.
For example, in the case of tests of controls,
the auditor might extend the sample size, test
an alternative control or modify related
substantive procedures.
STEPS IN STATISTICAL ATTRIBUTE SAMPLING
APPLICATION
 PLANNING

1. Determine the Test objectives

2. Decide the Sampling Approach
3. Define the Population characteristics
4. Determine the Sample size

PERFORMANCE

5. Select sample items

6. Specify the tolerable error
7. Specify Sampling risk
8. Perform the auditing procedures
 EVALUATION

9. Calculate the results

10. Generalization from the sample to the population
11. Draw conclusions.
 Performing the Audit Procedures

 To ensure conclusions arising from tests on audit

samples are appropriate, auditor must perform
testing on each items/assertions selected.
 If selected item is not appropriate for application of
testing procedure a replacement item can be
selected.
 If auditor is unable to perform test on selected item
(e.g. loss of documentation), it is considered to be
an error.
 Evaluating sample results
 To evaluate sample results, auditor determines
the level of error found in sample and directly
projects this error to relevant population.
 Projected error is then compared with tolerable

error for the audit procedure to determine if

characteristic of interest can be accepted or
rejected. ie the auditor identifies a particular
characteristic of the population to focus upon.
 .
 Evaluating sample results
 For tests of control the characteristic of interest
is the rate of deviation from an internal control
policy or procedure & For tests of details, the
characteristic of interest is monetary
misstatement in the balance.
 Auditor should consider both the nature and

cause of any errors identified

THE END!