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Audit Sampling
when auditing financial statements, it is not feasible to audit and check every single item within the financial statements. It will be very costly and will take a lot of resources and time to do so.
The Institute of Chartered Accountants of Indian defines the expression ‘Audit Sampling’ as the application of audit procedures to less than 100% of the items within an account balance or class of transactions to enable the auditor to obtain and evaluate audit evidence about some characteristics of the items selected in order to form or assist in forming a conclusion concerning the population.
Audit sampling is effective from 01.04.1998 for all types of audits.
Audit sampling enables auditors to make conclusions and express fair opinions based on predetermined objectives without having to check all of the items within financial statements. The auditors will only verify selected items, and through sampling, can infer their opinion on the entire population of items.
Purposes
The purpose of the audit sampling is to establish auditing standards on the design and selection of the audit sample, evaluation of the sample results and applies equally to statistical and non-statistical samples. The audit sampling needs to be used so that auditors can complete their audits without wasting resources in checking every single item.
Areas covered
The audit sample covers design of sample, audit objectives, population, stratification, sample size and risk, tolerable and expected error, selection of sample, evaluation of sample results, analysis of errors in sample, projection of error, reassess sampling risk.
Objectives
The following are the objectives of the audit sampling-
- To gather enough evidence to conclude an audit opinion;
- To reduce the number of resources used;
- To provide the basis for auditors to issue a conclusive audit opinion;
- To detect any errors or fraud that can occur;
- To prove that auditors have completed their audit fully in accordance with auditing standards;
- To use as a tool for investigating.
Types of audit sampling
There are two forms of sampling-
- Statistical Audit Sampling; and
- Non-statistical Audit Sampling.
Statistical Audit Sampling
Statistical sampling in auditing uses probability theory and mathematical methods to select a representative subset of transactions or items from a large population, allowing auditors to draw statistically valid conclusions about the entire group efficiently, without testing 100% of the data. It quantifies sampling risk and ensures fairness through methods like random or systematic sampling, providing a reliable basis for forming an audit opinion, especially with vast datasets where full testing is impractical.
For example, with statistical sampling, ten items are selected from the total population randomly. Every single item within the 100 has an equal probability of being selected and tested for accuracy as a result. Again, it benefits auditors since they can still make an audit opinion but do not have to check all 100 transactions.
The following methods are used in this process-
- Random sampling;
- Systematic sampling;
- Stratified sampling;
- Attribute sampling.
Designing audit samples requires careful consideration of various factors, including the population size, homogeneity, and desired level of precision. Random sampling involves selecting items from the population without bias, while stratified sampling involves dividing the population into homogeneous subgroups to ensure adequate representation.
Benefits
This method saves time and cost compared to examining every transaction. It provides a scientifically defensible basis for audit conclusions. It helps auditors understand and manage the risk of missing material misstatements.
Non-statistical audit sampling
In contrast to statistical audit sampling, non-statistical audit sampling items are not chosen randomly. Instead, they are chosen based on the auditor’s judgment, and the result of the testing from the selections is not used to infer the conclusion for the entire population.
In the example earlier, ten inventory transactions can be used to infer the opinion on all 100 transactions. In non-statistical audit sampling, the auditors may choose to select items based on criteria such as-
- The value of items;
- Items with specific information.
Sample selection
Sample items should be selected in such a way that the sample can be expected to be representative of the population. Therefore, all items in the population should have an opportunity to be selected. For example, haphazard and random-based selection of items represents two means of obtaining such samples.
Sample result
If the sample results suggest that the auditor's planning assumptions were incorrect, he should take appropriate action. For example, if monetary misstatements are discovered in a substantive test of details in amounts or frequency that is greater than is consistent with the assessed levels of inherent and control risk, the auditor should alter his risk assessments. The auditor should also consider whether to modify the other audit tests that were designed based upon the inherent and control risk assessments. For example, a large number of misstatements discovered in confirmation of receivables may indicate the need to reconsider the control risk assessment related to the assertions that impacted the design of substantive tests of sales or cash receipts.
Conclusion
Leveraging software for statistical analysis enhances the efficiency and accuracy of auditors, enabling them to conduct complex analyses and derive meaningful insights from audit samples.
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