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Audit Sampling - Part 1

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Mohammed Shoman
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9 views15 pages

Audit Sampling - Part 1

Uploaded by

Mohammed Shoman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Audit Sampling For Tests Of

Controls And Substantive Tests Of


Transactions

CHAPTER 15
Learning Objectives
 Explain the concept of representative sampling.
 Distinguish between statistical and nonstatistical sampling and between
probabilistic and nonprobabilistic sample selection.
 Select representative samples.
 Define and describe audit sampling for exception rates.
 Use nonstatistical sampling in tests of controls and substantive tests of
transactions.
 Define and describe attributes sampling and a sampling distribution.
 Use attributes sampling in tests of controls and substantive tests of transactions.
Representative Samples
 A representative sample is one in which the characteristics in the sample are
approximately the same as those of the population. This means that the sampled items
are similar to the items not sampled

 auditors never know whether a sample is representative, even after all testing is
complete. However, auditors can increase the likelihood of a sample being
representative by using care in designing the sampling process, sample selection,
and evaluation of sample results.

 A sample result can be nonrepresentative due to nonsampling error or sampling


error. The risk of these two types of errors occurring is called nonsampling risk and
sampling risk. Both of these can be controlled.
Nonsampling Risk
 Nonsampling risk: is the risk that audit tests do not uncover existing exceptions in the sample.
 The two causes of nonsampling risk are
o the auditor’s failure to recognize exceptions and
o inappropriate or ineffective audit procedures.
 An auditor might fail to recognize an exception because of exhaustion, boredom, or lack of
understanding of what to look for.
 example, assume 3 shipping documents were not attached to duplicate sales invoices in a sample of
100. If the auditor concluded that no exceptions existed, that is a nonsampling error.
Sampling Risk
 Sampling risk is the risk that an auditor reaches an incorrect
conclusion because the sample is not representative of the
population.
 Sampling risk is an inherent part of sampling that results
from testing less than the entire population.
Control Sampling Risk
 Auditors have two ways to control sampling risk:

1. Adjust sample size


 Increasing sample size reduces sampling risk and vice versa. a sample of all
the items of a population has a zero sampling risk. a sample of one or two
items has an extremely high sampling risk.

2. Use an appropriate method of selecting sample items from the


population
Statistical Versus Nonstatistical Sampling
And Probabilistic Versus Nonprobabilistic
Sample Selection

 Audit sampling methods can be divided into two broad categories: statistical sampling and
nonstatistical sampling. These categories are similar in that they both involve three phases:
1. Plan the sample
 The purpose of planning the sample is to make sure that the audit tests are performed in a manner
that provides the desired sampling risk and minimizes the likelihood of nonsampling error.
2. Select the sample and perform the tests
 It involves deciding how a sample is selected from the population. The auditor can perform the
audit tests only after the sample items are selected
3. Evaluate the results
 is the drawing of conclusions based on the audit tests.
Statistical Sampling
 Statistical sampling differs from nonstatistical sampling in that, by
applying mathematical rules, auditors can quantify (measure) sampling
risk in planning the sample (step 1) and in evaluating the results (step 3).

 Calculating a statistical result at a 95 percent confidence level in a


statistics course. A 95 percent confidence level provides a 5 percent
sampling risk.
Nonstatistical Sampling
 In nonstatistical sampling, auditors do not quantify
sampling risk. Instead, auditors select sample items they
believe will provide the most useful information and reach
conclusions about populations on a judgmental basis.

 For that reason, the use of nonstatistical sampling is often


termed judgmental sampling.
Probabilistic Sample
Selection
 Probabilistic sample selection, the auditor
randomly selects items such that each
population item has a known probability of
being included in the sample.
Nonprobabilistic
Sample Selection
 For nonprobabilistic sample selection, the auditor
selects sample items using professional judgment rather
than probabilistic methods.
 Auditors can use one of several nonprobabilistic sample
selection methods.
 Three types of sample selection methods are commonly associated with
nonstatistical audit sampling. All three methods are nonprobabilistic.
 Nonprobabilistic (judgmental) sample selection methods include the following:
1. Directed sample selection
2. Block sample selection
3. Haphazard sample selection
 Four types of sample selection methods are commonly associated with statistical
audit sampling. All four methods are probabilistic.
 Probabilistic sample selection methods include the following:
1. Simple random sample selection
2. Systematic sample selection

3. Probability proportional to size sample selection


4. Stratified sample selection
 Auditing standards permit auditors to use either statistical or nonstatistical sampling
methods.

 When statistical sampling is used, the sample must be a probabilistic one and appropriate
statistical evaluation methods must be used with the sample results to make the sampling
risk computations.

 Auditors may make nonstatistical evaluations when using probabilistic selection, but it is
never acceptable to evaluate a nonprobabilistic sample using statistical methods.

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