Chp09 Audit Sampling

8/2/2019 Chp09 Audit Sampling

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Slide 9- 2

Audit Sampling Defined

SAS No. 39 defines audit sampling asthe application of an audit procedure to

less than 100 percent of the items withinan account balance or class oftransactions for the purpose of

evaluating some characteristic of thebalance or class (AU 350.01).


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Slide 9- 3

Advantages ofStatistical Sampling

Design efficient samples

Measure sufficiency of evidence

Objectively evaluate sample results


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Slide 9- 4

Requirements ofAudit Sampling Plans

When planning the sample consider:

The relationship of the sample to the relevant audit objective

Materiality or the maximum tolerable misstatement ordeviation rate

Allowable sampling risk

Characteristics of the population

Select sample items in such a manner that they can beexpected to be representative of the population

Sample results should be projected to the population

Items that cannot be audited should be treated asmisstatements or deviations in evaluating the sampleresults

Nature and cause of misstatements or deviations should

be evaluated


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Slide 9- 5

Selection of Random Sample

Random number tables

Random number generators

Systematic selection

Haphazard Selection

Note that these methods are often used in conjunction

with a stratification process.


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Slide 9- 6

Terminology

Sampling risk

Risk of assessing CR too high / Risk of

incorrect rejection Risk of assessing CR too low / Risk of

incorrect acceptance

Precision (allowance for sampling risk)


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Types of StatisticalSampling Plans

Attributes sampling

Discovery sampling

Classical variables sampling

Probability-proportional-to-size sampling


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Attribute Sampling Applied ToTests Of Controls

Attribute sampling is a statistical methodused to estimate the proportion of a

characteristic in a population. The auditor is normally attempting to

determine the operating effectiveness of

a control procedure in terms ofdeviations from the prescribed internalcontrol.


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Sampling Risk forTests of Controls

CorrectDecision

IncorrectDecision

(Risk of Assessing

Control Risk

Too High)

IncorrectDecision

(Risk of Assessing

Control Risk

Too Low)

CorrectDecision

True State of Population

Deviation Rate Deviation RateExceeds Is Less Than

Auditors Conclusion Tolerable Rate Tolerable Rate

From the Sample Is:

Deviation RateExceeds

Tolerable Rate

Deviation RateIs Less ThanTolerable Rate


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Attribute Sampling forTests of Controls

Determine the objective of the test

Define the attributes and deviation conditions

Define the population to be sampled

Specify:

The risk of assessing control risk too low

The tolerable deviation rate

The estimated population deviation rate

Determine the sample size

Select the sample Test the sample items

Evaluate the sample results

Document the sampling procedure

Planning

Performance

Evaluation

Documentation


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Discovery Sampling

A modified case of attributes sampling

Purpose is to detect at least one deviation (i.e.

critical deviations) Useful in fraud detection

Auditor risk and deviation assessments:

Risk of assessing control risk too low (i.e. 5%) Tolerable rate (normally set very low, i.e. < 2%)

Expected deviation rate is generally set at 0


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NonstatisticalAttributes Sampling

Determination of required sample size Must consider risk of assessing control risk too low

and tolerable deviation rate

Need not quantify the risks Evaluation of results

Compare tolerable deviation rate to sampledeviation rate. Assuming appropriate n: If SDR somewhat less than TDR, then conclude that risk

of assessing control risk too low is set appropriately. If SDR approaches TDR it becomes less likely that PDR SI, PM = actual misstatement


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Slide 9- 28

PPS SamplingEvaluation of Sample Results

Allowance for sampling risk Basic precision = SI x RF0

Incremental allowance

If no misstatements in sample found, IA = 0

If misstatements found:

For misstatements in which BV < SI, rank order

projected misstatements from largest to smallest,multiply by corresponding incremental factor(from Table 9-14) and sum to calculate IA.


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PPS SamplingEvaluation of Sample Results

Compare ULM to TM:

If ULM < TM, conclude that population is not

misstated by more than TM at the specifiedlevel of sampling risk.

If ULM > TM, conclude that the sample resultsdo not provide enough assurance that the

population misstatement is less than the TMand balance adjustment may be warranted.

Chp09 Audit Sampling

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