Chapter 9 - Audit Sampling
Chapter 9 - Audit Sampling
Chapter 9 - Audit Sampling
The professional standards require the auditor to obtain sufficient appropriate evidence to be able to draw
reasonable conclusions on which to base audit opinion. In forming the opinion in the financial statements,
the auditor does not normally examine all evidence available. Auditor’s usually draw conclusions about
the account balance or transactions class by examining only a sample of evidence.
PSA 350 defines audit sampling as “the application of audit procedures to less than 100% of the items
within an account balance or class of transactions such that all sampling unit have a chance of
selections”.
Audit sampling is performed on the assumption that the sample selected for testing is the
representative of the population.
Not all testing procedures performed by auditors involve sampling. For example, the auditor may decide
that it would be more appropriate to examine the entire population (100% examination) since the
population constitutes a small number of large value items.
Likewise, the auditor may decide to apply audit procedures only to those items which have particular
significance (selective testing).
Regardless of the approach used, the auditor needs to be satisfied that sufficient appropriate evidence is
obtained to meet the objective of the test.
Risk in Sampling
Sampling risks refers to 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 procedures. This
exist because the sample selected for testing may not be truly representative of a population.
- In the case of test of controls, the internal control is not reliable when in fact it is effective
(risk of underreliance)
- In the case of substantive tests, that material misstatements exist in account balance or
transaction when in fact such misstatement does not exist (risk of incorrect rejection)
- This results in the auditor performing audit procedures more than what is necessary, thus
affecting audit efficiency.
- In the case of test of controls, the internal control is reliable when in fact it is not (risk of
overreliance)
- In the case of substantive tests, the material misstatements does not exist when it fact it
does (risk of incorrect acceptance).
- This results in the auditor performing audit procedures less than what is necessary, thereby
affecting the auditor’s ability to detect material misstatements in the financial statements.
Hence, the beta risk affects the audit effectiveness.
Non-sampling risk refers to risk that the auditor may draw incorrect conclusion about the account
balance or class of transactions because of human errors.
The only way to eliminate sampling risk is to examine the entire population. Doing this however, would
not be feasible because of time and cost constraints. The auditors instead control sampling risk by:
Non-sampling risk, on the other hand, is something that cannot be eliminated even if the auditor
examines the entire population. This risk however can be minimize by:
1. Statistical sampling
- Uses random based selection of sample
- Uses statistics to measure sampling risk and evaluate sample results
2. Non-statistical sampling
- Purely uses auditor’s judgement
It may be used when performing test of controls or substantive tests. When statistical sampling is used,
the auditor may use either:
1. Attribute sampling
2. Variable sampling
Sampling plan used to estimate numerical measurement of a population such as peso value. It is
generally used if performing substantive tests to estimate the amount of misstatements in the
financial statements.
Step 1: Define the objective – largely determines the audit procedures to be applied
Step 2: Determine the procedure – determine the audit procedure that will be performed to satisfy the
objective.
Step 3: Determine the sample size – decide how much sampling units to include in the sample.
Step 4: Select the sample – sample selection technique in such a way that all items in the population will
have an opportunity to be selected.
Step 5: Apply the procedures – the auditor applies the planned audit procedure to the sample.
Step 6: Evaluate the results – the sample results must be evaluated to determine whether sufficient
evidence has been obtained to satisfy the objective.
It is to be emphasize that steps 1, 2, 5 and 6 will be performed regardless of whether the auditor uses
audit sampling or not.
Hence, the only difference between audit sampling and 100% examination is that audit sampling
involves: