Audit Sampling

Auditors apply audit sampling in almost every audit engagement. However, very often, auditors do not adequately document their thought processes on how the sample size was determined, and how the sample was selected from the population. Also, deviations and misstatements aren’t always identified, and responded to appropriately. It is important for sampling considerations to be clearly documented to support professional judgment applied, and compliance with the requirements.

Reliable information

When designing and performing audit procedures, the auditor must start by considering the relevance and reliability of the information to be used as audit evidence, including information obtained from external information sources. Therefore, the auditor must document how the completeness and accuracy of the population used for sampling was established, for example, reconciling the sample population to the trial balance. It is of no use to perform sample testing, if the population used for sampling is not relevant and reliable.

Objective of the test

When designing a sample, the auditor must consider the purpose of the audit procedures and the characteristics of the population from which the sample will be drawn. This assists with determining the most efficient and effective way to test the population. For example, stratification of the population into smaller sub-populations with similar characteristics may be an effective approach for testing operating expenses.

Sampling characteristics

The next step is to determine a sample size sufficient to reduce sampling risk to an acceptably low level. It must be risk based – the higher the risk, the bigger the sample size. The firm’s sampling methodology must be correctly applied, and any deviations or professional judgment calls must be adequately supported by documenting the reasoning for decisions made.

Sample selection

Lastly, the sample must be selected in such a way that each item in the population has a chance of selection. The sample selected must be representative of the population, in order to draw appropriate conclusions about the population. This is why random selection, through Excel’s random number-generator function, and systematic selection, such as interval sampling, are preferred selection methods.

Deviations and misstatements

When testing a sample, the procedures may sometimes not be applicable to all the selected items. In such cases, replacement items must be selected to ensure that the procedures were performed on the required number of relevant sample items. It must also be clearly documented why the procedure was not applicable for the item selected.

If misstatements are identified in the sample, unless additional procedures performed indicate that the misstatements are anomalous, the results must be projected to the population, so that appropriate conclusions may be made based on sample testing. Deciding on the materiality of misstatements before projecting the sample testing results to the population may lead to incorrect conclusions.

In summary

Audit sampling can lead to efficient and effective audit testing, and reasonable conclusions when correctly applied in the circumstances. Documentation of key considerations is critical to supporting decisions and conclusions.

LEAF can assist firms with performing thorough file reviews, providing practical advice, reviewing methodology design, designing audit working paper templates, and providing staff training on the relevant requirements and procedures.

References

1. ISA 530, Audit sampling
2. ISA 500, Audit evidence.

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