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AT Quizzer (CPAR) - Audit Sampling

This document provides an overview of audit sampling techniques. It defines key terms like population, sampling unit, sampling frame, sample, and error. It describes three main approaches to selecting items for testing: 100% examination of the entire population, selecting specific items, and audit sampling which involves applying procedures to less than 100% of items. Audit sampling allows auditors to make inferences about an entire population based on a sample, while selective testing of specific items does not allow for such projections. Factors like audit risk, efficiency, and obtaining sufficient evidence guide the auditor's choice of sampling approach.

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432 views

AT Quizzer (CPAR) - Audit Sampling

This document provides an overview of audit sampling techniques. It defines key terms like population, sampling unit, sampling frame, sample, and error. It describes three main approaches to selecting items for testing: 100% examination of the entire population, selecting specific items, and audit sampling which involves applying procedures to less than 100% of items. Audit sampling allows auditors to make inferences about an entire population based on a sample, while selective testing of specific items does not allow for such projections. Factors like audit risk, efficiency, and obtaining sufficient evidence guide the auditor's choice of sampling approach.

Uploaded by

Princess
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© © All Rights Reserved
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Page 1 of 14

CPA REVIEW SCHOOL OF THE PHILIPPINES


Manila
AUDITING THEORY
AUDIT SAMPLING
Related PSA: PSA 530
When designing audit procedures, the auditor should determine appropriate means of selecting
items for testing. The means available to the auditor are:
(a) Selecting all items (100% examination);
(b) Selecting specific items, and
(c) Audit sampling.

The decision as to which approach to use will depend on the circumstances, and the application of
any one or combination of the above means may be appropriate in particular circumstances. While
the decision as to which means, or combination of means, to use is made on the basis of audit risk
and audit efficiency, the auditor needs to be satisfied that methods used are effective in providing
sufficient appropriate audit evidence to meet the objectives of the test.

Selecting All Items


The auditor may decide that it will be most appropriate to examine the entire population of items
that make up an account balance or class of transactions (or a stratum within that population).
100% examination is unlikely in the case of tests of control; however, it is more common for
substantive procedures. 100% examination may be appropriate on the following:
a) When the population constitutes a small number of large value items;
b) When both inherent and control risks are high and other means do not provide sufficient
appropriate audit evidence; or
c) When the repetitive nature of a calculation or other process performed by a computer
information system makes a 100% examination cost effective.

Selecting Specific Items


The auditor may decide to select specific items from a population based on such factors as
knowledge of the client’s business, preliminary assessments of inherent and control risks, and the
characteristics of the population being tested. The judgmental selection of specific items is subject
to non-sampling risk. Specific items selected may include:
 High value or key items. The auditor may decide to select specific items within a population
because they are of high value, or exhibit some other characteristic, for example items that
are suspicious, unusual, particularly risk-prone or that have a history of error.

 All items over a certain amount. The auditor may decide to examine items whose values
exceed a certain amount so as to verify a large proportion of the total amount of an account
balance or class of transactions.

 Items to obtain information. The auditor may examine items to obtain information about
matters such as the client’s business, the nature of transactions, accounting and internal
control systems.

 Items to test procedures. The auditor may use judgment to select and examine specific
items to determine whether or not a particular procedure is being performed.

While selective examination of specific items from an account balance or class of transactions will
often be an efficient means of gathering audit evidence, it does not constitute audit sampling. The
results of procedures applied to items selected in this way cannot be projected to the entire
population. The auditor considers the need to obtain appropriate evidence regarding the
remainder of the population when that remainder is material.

Audit Sampling
The auditor may decide to apply audit sampling to an account balance or class of transactions.
Audit sampling (sampling) involves the application of audit procedures to less than 100% of items
within an account balance or class of transactions such that all sampling units have a chance of
selection.

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Page 2 of 14

Terms normally associated with sampling:


Population - means the entire set of data from which a sample is selected and about which the
auditor wishes to draw conclusions. For example, all of the items in an account balance or a class
of transactions constitute a population. A population may be divided into strata, or sub-
populations, with each stratum being examined separately. The term population is used to include
the term stratum.

Sampling unit - means the individual items constituting a population, for example checks listed on
deposit slips, credit entries on bank statements, sales invoices or debtors’ balances, or a monetary
unit.

Sampling frame – means the documentary evidence which physically represents the sampling
units in a given population.

Sample – the portion of the population that will be subjected to audit testing. The selected sample
should be representative of the population.

Error - For purposes of PSA 530, means either control deviations, when performing tests of control,
or misstatements, when performing substantive procedures.

Tolerable error - means the maximum error in a population that the auditor is willing to accept.

Stratification - is the process of dividing a population into subpopulations, each of which is a group
of sampling units which have similar characteristics (often monetary value).

Sampling is not involved in:


1) 100% examination;
2) Selective testing; and
3) Audit procedures which either (1) have very limited purposes and provide only a small portion
of the evidence needed to meet an audit objective or (2) intentionally exclude a portion of the
population such as:
a) Performing a walkthrough test;
b) Testing controls that leave no audit trail (such as observing client personnel as they
perform internal control activities);
c) Performing analytical procedures;

Advantages of sampling over complete (100%) verification


1) Timeliness – Sampling requires lesser time; audit would be completed on a more timely
basis.
2) Efficiency – Sampling can considerably reduce audit costs.
3) Effectiveness – Sampling can provide valid conclusions that the sample reflects the same
characteristics as the population.

Risk Considerations in Obtaining Evidence


Sampling risk and non-sampling risk can affect the components of audit risk.

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.

Nonsampling risk arises from factors that cause the auditor to reach an erroneous conclusion for
any reason not related to the size of the sample, such as:
1) Failure to select appropriate audit procedures
2) Failure to recognize errors in documents examined
3) Misinterpreting the results of audit tests

For both tests of control and substantive tests, sampling risk can be reduced by increasing sample
size, while non-sampling risk can be reduced by proper engagement planning, supervision, and
review.

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