Audit Sampling- Auditing- L14 - Professor Helen Brown Liburd
Principles of Auditing: Professor Liburd
Lecture 14
Audit Sampling
4/18/14
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TIME STAMPS
0:10 When is Sampling Used
4:01 Sampling Risks
12:20 Sampling Approaches
17:06 Representative Sampling
20:06 Minimizing Sampling Risk
20:47 Summary of Sampling Risks
24:28 Sampling Approach Steps
35:20 Variables Sampling
37:13 Attribute Sampling
38:45 Sampling Risks Associated with Attributes Sampling
40:30 Factors Affecting Sample Size
46:32 How to Determine Sample Size
49:35 Making the Decision
53:43 No such thing as an isolated misstatement!
54:36 Documentation
Sampling is used when exact information is not needed, and when a large population is being dealt with. It trades effectiveness for efficiency. Sampling [in auditing] is used for study and evaluation of internal control (selecting control procedures to verify compliance, attributes sampling), and substantive procedures (selecting components or transactions of account balances for verification & variables sampling).
Sampling risk is the risk that an auditor reaches an incorrect conclusion because the sample is not representative of the population (inherent part of audit sampling). It is controlled by determining an appropriate sample size, ensuring that all items have an equal opportunity of selection, and mathematically evaluating sample results. Non sampling risk is the risk that audit tests do not uncover existing exceptions in the sample. It results from the auditor's failure to recognize exceptions due to inappropriate or ineffective audit procedures. It is controlled by training, supervision, reasonable working conditions, and effort.
Statistical sampling methods use the laws of probability to select sample items and evaluate sample results. Statistical sampling methods measure the auditor's exposure to sampling risk. Nonstatistical sampling violates one or both of the above criteria. Both statistical sampling and non statistical sampling can be used in a GAAS audit.
A represenative sample is one in which the characteristics in the sample of audit interest are approximately the same as those of the population (the sample accurately represents the total population). An auditor can increase the likelihood of a representative sample by using care in designing the sampling process and selection, and evaluating the results.
Overall, effectiveness losses can include risk of overreliance (assessing control risk too low) and risk of incorrect acceptance. Efficiency losses include risk of underreliance (assessing control risk too high) and the risk of incorrect rejection.
To plan the sample, the auditor must state the objectives of the audit test (test operating effectiveness of internal control), decide whether audit sampling applies, define attributes and exception conditions, define the population (significance of completeness), define the sampling unit (must be consistent with audit objective), specify the tolerable rate of deviation, specify acceptable risk of assessing control risk too low, estimate the population exception rate, and determine the initial sample size. To select the sample and perform the audit procedures, the auditor must select the sample and perform the audit procedures. To evaluate the results, the auditor must generalize from the sample to the population, analyze exceptions, and decide the acceptability of the population.
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