Audit Sampling Overview

Audit Sampling

• Audit sampling is the application of an audit procedure to less than 100% of the items within an account balance or class of transactions.
• Auditors must ensure the sample selected is representative of the entire population.
• A representative sample ensures the findings apply to the broader population.
• Two approaches are statistical and non-statistical sampling.

Statistical Sampling

• Sample size must be determined objectively and quantitatively.
• Sample members must be selected randomly.
• Sample results must be evaluated mathematically.
• The sample must be probabilistic.
• Mathematical rules allow auditors to quantify sampling risk in planning the sample and evaluating results.
• Probabilistic sampling ensures each population item has a known probability of being included in the sample.
• Common probabilistic sampling methods include simple random, systematic, probability proportional to size, and stratified.
  • Simple random: Every possible combination has an equal chance of selection. Used when items need no emphasis.
  • Systematic: An interval is calculated then items are selected sequentially. Population size is divided by the desired sample size.
  • Probability proportional to size: Accounts for varying sizes within the population when selecting the sample.
  • Stratified: Divides the entire population into subgroups, then randomly selects sample items from each group.

Non-Statistical Sampling (Judgement Sampling)

• A non-statistical sample does not meet one or more criteria of statistical sampling.
• Auditors choose sample items they believe provide most useful information given the circumstances; reaching conclusions judgmentally.
• Non-probabilistic sampling methods are used including directed, block, and haphazard.
  • Directed: Auditors deliberately select items based on their own criteria, avoiding random selection.
  • Block: The first item in a block is selected, then the rest of the items are chosen sequentially.
  • Haphazard: Items are selected without conscious bias by the auditor.

Audit Sampling Phases

• Planning the sample.

• Selecting the sample and performing tests.

• Evaluating the results.

  • Example illustration: An auditor selects a sample of 2,050 invoices and finds 205 exceptions.

Audit Sampling Risks

• Sampling Risk: Risk of reaching an incorrect conclusion due to a non-representative sample; can be controlled via adjusting the sample size and using appropriate selection methods. - Causes of sampling risk: The sample is not representative of the population.
• Non-Sampling Risk: Risk that audit tests do not uncover existing exceptions; can arise from the auditor's failure to recognize exceptions or because of inappropriate/ineffective audit procedures. - Example: Selecting an invoice sample needing duplicate shipping docs and concluding there are no exceptions. - Causes of non-sampling risk: Auditor's failure to recognize exceptions, ineffective audit procedures.

Quiz Questions and Answers (Examples)

• An advantage of statistical sampling over non-statistical: Measuring the sufficiency of audit evidence by quantifying sampling.
• Which best illustrates sampling risk? A randomly chosen sample may not be representative of the whole population for the characteristic of interest.
• In non-statistical sampling, increasing the desired confidence level: Results in a larger sample size.

This quiz covers the fundamentals of audit sampling, including the importance of selecting a representative sample and the differences between statistical and non-statistical sampling methods. It delves into the various probabilistic sampling techniques and the significance of quantifying sampling risk in audits.