AUDIT SAMPLING
would usually lead to additional work to establish
Means of Selecting Items for Testing
When designing tests of controls and test of details, the auditor’s
means of selecting items for testing are:
 Selecting all items (100% examination),
 Selecting specific items, and
 Audit sampling
These approaches are described in further detail below.
Selecting All Items
100% examination is unlikely in the case of tests of controls;
however, it is more common for tests of details. 100%
examination may be appropriate when, for example:
 The population constitutes a small number of large
value of items;
 There is a significant risk and other means do not
provide sufficient appropriate audit evidence; or
 Cost effective by using CAATs
Selecting Specific Items
Specific items selected may include:
 High value or key items
 All items over a certain amount
 Items to obtain information about matters such as the
nature of the entity or the nature of transactions
This does not constitute audit sampling. The results of audit
procedures applied to items selected in this way cannot be
projected to the entire population; accordingly, selective
examination of specific items does not provide audit evidence
concerning the remainder of the population.
Audit Sampling
Definitions
For purposes of the PSAs, the following terms have the
meanings attributed below:
a) Audit sampling – The application of audit procedures to less
than 100% of items within a population of audit relevance
such that all sampling units have a chance of selection.
b) Population – The entire set of data from which a sample is
selected and about which the auditor wishes to draw
conclusions. For example, all of the items in a class of
transactions or account balance constitute a population. A
population may be divided into strata, or sub-populations,
with each stratum being examined separately.
c) Sampling risk – The risk that the auditor’s conclusion based
on a sample may be different from the conclusion if the
entire population were subjected to the same audit
procedure. Sampling risk can lead to two types of erroneous
conclusions:
i. In the case of a test of controls, that controls are
more effective than they actually are, or in the case
of a test of details, that a material misstatement
does not exist when in fact it does. Because it
affects audit effectiveness and is more likely to
lead to an inappropriate audit opinion, the auditor
is primarily concerned with this type or erroneous
conclusion.
ii. In the case of a test of controls, that controls are
less effective than they actually are, or in the case
of a test of details, that a material misstatement
exists when in fact it does not. This type of
erroneous conclusion affects audit efficiency as it
that initial conclusions were incorrect.
d) Non-sampling risk – The risk that the auditor does not
recognize misstatements or deviations included in the
sample for what they are.
e) Sampling unit – The individual items constituting a
population.
f) Statistical sampling – An approach to sampling that has the
following characteristics:
i. Random selection of the sample items; and
ii. The use of probability theory to evaluate
sample results, including measurement of
sampling risk.
A sampling approach that does not have characteristics (i) and
(ii) is considered non-statistical sampling.
g) Stratification – The process of dividing a population into
sub-populations, each of which is a group of sampling units
which have similar characteristics (often monetary value).
h) Tolerable misstatement – A monetary amount set by the
auditor in respect of which the auditor seeks to obtain an
appropriate level of assurance that it is not exceeded by the
actual misstatement in the population.
i) Tolerable rate of deviation – A rate of deviation from
prescribed internal control procedures set by the auditor in
respect of which the auditor seeks to obtain an appropriate
level of assurance that it is not exceeded by the actual rate
of deviation in the population.
j) Estimated maximum misstatement – The upper limit of the
range of possible misstatement consistent with the auditor’s
risk assessment and results of other audit procedures.
k) Estimated maximum rate of deviation – The upper limit of
the range of possible rates of deviation consistent with the
auditor’s planned reliance on internal controls.
l) Projected misstatements – The auditor’s best estimate of
misstatements in populations involving the projection of
misstatements identified in audit samples to the entire
populations from which the samples were drawn.
m) Anomaly – A misstatement or deviation that is
demonstrably not representative of misstatements or
deviations in a population.
Dealing with sampling risks
The auditor can eliminate sampling risks by examining the entire
population. However, examining the entire population is
normally not possible for the auditor. Instead, the auditor usually
manages or controls sampling risk by making the sample more
representative of the population by:
 Increasing the sample size
 Using appropriate method of selecting sample items.
Non-sampling Risks
Non-sampling risk is the risk that the auditor reaches an
erroneous conclusion for any reason not related to sampling risk.
Non-sampling risk is also an aspect of audit risk not attributable
to sampling such as human error due to:
 Use or application of inappropriate audit procedures
 Failure to recognize errors (misstatements or
deviations) in the samples tested
 Misinterpretation of evidence obtained
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Dealing with non-sampling risks  Estimate value of population based on value of items in
Non-sampling risks cannot be totally eliminated in audit. There sample
is always a chance of human error in audit as the auditor’s Attributes Sampling
judgment may not always be correct. However, the auditor can a. Traditional (Classical) attributes sampling
manage non-sampling risks through:  Under traditional attribute sampling, sample size is
 Proper planning determined and sample tested to estimate error rate in
 Adequate direction and supervision of the audit team population
and timely review of their work. b. Stop-or-go (Sequential) sampling
 Performed in stages
The Two Sampling Approaches  Auditor decides to stop or continue sampling after
Audit sampling can be applied using either non-statistical or each stage
statistical sampling approaches. These two approaches involve  Appropriate when expected deviation rate is low
the use of auditor’s professional judgment in planning and  Sample selected in steps
performing the sampling procedure and evaluating the results of  Each step is based on results of previous step
the sample.  No fixed sample size and may result in lower sample if
few or no errors detected
The table below presents the comparison between the two c. Discovery Sampling
sampling approaches:
 Sample size is very small
Statistical Sampling Non-statistical
 Appropriate when expected deviation rate is extremely
Sampling
low or zero
Basic concepts  Random selection  A sampling  Sample large enough to detect at least one error if it
of the sample items approach that does exists
 Apply the laws or not have
 Any errors in sample results in rejection
theory of characteristics of
probability to: statistical sampling
 Design (i.e., no random Variables Sampling
efficient selection of sample a. Traditional (Classical) variables sampling – There are three
sample items and does not approaches to classical variables sampling for auditing
 Measure apply laws of applications that differ in the way the misstatement is
sufficiency of probability) projected to the population are:
sample  Cannot measure
 Mean-per-unit approach – The auditor estimates a total
 Evaluate sampling risk
sample results quantitatively, only population amount by calculating an average audited
 Measure based on the amount for all items in the sample and multiplying that
sampling risk auditor’s judgment. average amount by the number of items constituting
quantitatively the population.
Advantages  More defendable  Easy to apply  Difference approach – The auditor calculates the
 Free from bias  Less costly average difference between audited and recorded
Disadvantages  Overvalue the  Relies exclusively amounts of the sample items and projects that average
evidence it on professional
difference to the population.
provides judgment to
 Reduces auditor  Determining  Ration approach – The auditor calculates the ratio
skepticism sample size between the sum of the audited amounts and the sum
 Increased cost, due  Evaluate of the recorded amounts of the sample items and
to: sample results projects this ratio to the population. The auditor
 training estimates the total population amount by multiplying
auditors the total recorded amount for the population by the
 designing
same ratio.
samples

Types of Statistical Sampling
The two commonly used statistical sampling used in auditing
are:
1. Attributes sampling – generally used for tests of controls
 Test rate of deviation from a prescribed control
procedure
 Estimate frequency of errors in population based on
frequency in sample
 Determine whether or not estimated error rate indicates
control is working effectively
 Attribute – a characteristic of control
 Deviation – absence of the attribute
2. Variables Sampling – generally used for tests of details
 Tests whether recorded account balances are fairly
stated
Using formal normal distribution theory based on the variability
of the audited amounts in the sample, the auditor also calculates
an allowance for sampling risk.
b. Monetary unit sampling (a.k.a., Probability Proportional to
Size (PPS) or Value-weighted selection)
 Uses attributes sampling theory to express a
conclusion in amounts rather than as a rate of
occurrence.
 Probability of selecting an item is proportional to its
recorded amounts.
 Automatically stratifies an audit population.
 Appropriate for testing for overstatement and few or
no errors are expected.
Useful for testing assets and revenues
 Advantages over classical variables sampling
 Items with larger amounts have a greater
probability of being selected

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  An item that is individually material will
automatically be selected
 Sample size may be reduced as the same item may
be selected more than once
 The sample distribution does not have to be close
to the distribution in the population for the sample
to be valid
 Sampling can be initiated prior to year-end more
easily
 Disadvantages of PPS
 Understated items have a lower probability of
being selected
 Items with zero or negative balances are not
generally included in the sample
 A high frequency of misstatements results in an
increase in sample size
The tables below list the factors affecting sample size for test of
controls and test of details
interval corresponds with a particular pattern in the
population.
 Useful when identification number lacking
 Appropriate for both statistical and nonstatiscal
sampling
c. Haphazard Selection
 The auditor selects the sample without following a
structured technique.
 Sampling units selected without special reason or
conscious bias.
 Inappropriate for statistical sampling
 Useful for nonstatistical sampling
d. Block Selection
 Involves selection of a block(s) of contiguous items
from within the population
 Inefficient and not generalizable
 Should not be used for statistical or nonstatistical
sampling without care in controlling sampling risk

Test of Controls (Attribute Sampling)

Factor Relationship
Tolerable deviation rate Inverse
Allowable risk of assessing
control risk too low/ Sampling Inverse
risk (beta risk)
Expected population deviation
Direct
risk
Population size Negligible effect

Test of Details (Variables Sampling)

Factor Relationship
Assessment of the
Direct
ROMM/level of control risk
Other substantive tests Inverse
Tolerable misstatement Inverse
Allowable risk of incorrect
acceptance/Sampling risk (beta Inverse
risk)
Expected amount of
Direct
misstatement
Effect of stratification Inverse
Population size Negligible effect

Sample Selection Methods

The principal methods of selecting samples are the use of
random selection, systematic selection and haphazard selection.
a. Random number Selection
 Every sampling unit has the probability of being
selected as every other sampling unit in the
population.
 Uses computer-generated number to select sampling
units.
 Match number to prenumbered documents.
 Appropriate for both statistical and nonstatistical
sampling.
b. Systematic Selection
 The number of sampling units in the population is
divided by the sample size to give a sampling interval,
for example 50, and having determined a starting point
within the first 50, each 50th sampling unit thereafter is
selected. Starting point may be determined
haphazardly or randomly.
 Determine that sampling units within the population
are not structured in such a way that the sampling