Audit Sampling

KASHIF ANWAAR
SAP FI, MBA (Finance), CFC, CIA (Part1,3,4), ICMA Prof-
1, Dip. In Contract Mangement
Definition of Sampling
“the application of compliance or substantive
procedure to less than 100% of the items within
an account balance or class of transactions to
enable the auditor to obtain and evaluate
evidence of some characteristic of the class or
balance and to form or assist in forming
characteristic of the class or balance and to form
or assist in forming a conclusion concerning the
characteristic”
(AICPA Definition)
When is Sampling Used?
• Study and evaluation of internal control
− Sampling for Internal Controls procedures to verify
compliance
(Attribute sampling)

• Substantive procedures
− Selecting components or transactions of account
balances for verification
(Variables sampling)
NEED FOR SAMPLING

• Saves time
• Involves less cost
• Is the only alternative in some cases, when 100%
checking is not feasible, like blood tests.
• Better results than 100% testing in some cases
Audit Sampling

• The auditor takes a sample to reach a

conclusion about the population as a whole.
• It is important that the sample be representative
of the population from which it was selected.
Methods Of Sampling
• Statistical:
− Statistical sampling is the selection of a sub set
from a population in such a way that each sampling
unit has an equal and known chance of selection

• Non Statistical:
− Non statistical samples are samples selected by
other means which are intended to approximate the
representative character of a statistical sample.
 Advantages of statistical over non-statistical sampling

• Because each sampling unit has an equal and known

chance of selection, there is a better chance that the
sample will be representative of the population than is the
case with a non-statistical sample. When expressing an
opinion on financial statements, having a representative
sample is very important.
• Because there is a better chance that the sample will be
representative of the population, the sample results are
more objective and defensible, as are the projections of
those results to the population as a whole.
• The difference between statistical and non statistical
sampling is the method of selecting the sample items.
All the planning requirements remain the same.
• There are two basic sample selection rules:
− The sample conclusion only applies to the population from
which it is selected
− The sample should be representative of the population from
which it is selected.
Sample Risk
• The chance that sample is not representative of
the population from which it was selected.
• If it is not representative the auditor could
reach an incorrect conclusion.
• Due care should be taken at planning stage.
Confidence Level
• The confidence level is the degree of assurance
that the auditor has that the sample is
representative of the population from which it
was selected.
• For a 90% confidence level, there is a 90%
chance that the sample will be representative of
the population from which it was selected.
Population
• The basic rule states that the sample conclusion
only applies to the population from which it is
selected.
• If the auditor wants to rely on the internal
control structure for the entire year, it would be
best that is sample is taken from the entire year
Population Size
• Population Size is the number of Sampling
Units in a Population
− Purchases
− Repairs
− Receipts
Population Value
• The Population Value is the Monitory amount
of the population being sampled.
− e.g. Rs. 100,000,000
Factors affecting Sample Size
• Confidence level
• Sampling Risk
• Materiality
• Expected Aggregate Error
• Population Value
Sample Selection Methods
• Statistical:
− Random
− Fixed Interval (Systematic)
− Cell (Random Selection)
− Stratified Random

• Non Statistical:
− The objective is to try to approximate one of these
methods
Random Selection
• It involves numbering of all the transactions
and then using a random number table to select
random numbers.
Month Vouchers
July 12
August 72
September 44
October 13
November 141
December 45
January 39
February 11
March 84
April 34
May 72
June 37
604
 Random Number Table-1
15 62 38 72 92 03 76 09 30 75 77 80 04 24 54 67 60 10 79 26 21 60 03 48 14
77 81 15 14 67 55 24 22 20 55 36 93 67 69 37 72 22 43 46 32 56 15 75 25 12
18 87 05 09 96 45 14 72 41 46 12 67 46 72 02 59 06 17 49 12 73 28 23 52 48
08 58 53 63 66 13 07 04 48 71 39 07 46 96 40 20 86 79 11 81 74 11 15 23 17
16 07 79 57 61 42 19 68 15 12 60 21 59 12 07 04 99 88 22 39 75 16 69 13 84

54 13 05 46 17 05 51 24 53 57 46 51 14 3 17 21 39 89 07 35 47 87 44 36 62
95 27 23 17 39 80 24 44 48 93 75 94 77 09 23 48 75 91 69 03 55 51 09 74 47
22 39 44 74 80 25 95 28 63 90 41 19 48 46 72 51 12 97 39 83 35 83 23 17 29
69 95 21 30 11 98 81 38 00 53 41 40 04 16 78 67 29 83 41 18 30 90 44 37 64
75 75 63 97 12 11 57 05 86 52 82 72 47 72 14 37 72 69 75 48 72 21 52 51 81

08 74 79 30 80 70 11 66 79 25 88 01 94 52 31 38 57 98 71 62 12 56 61 01 54
04 88 45 98 60 90 92 74 77 87 40 18 65 87 37 08 68 62 39 52 84 74 90 68 18
97 35 74 05 75 42 13 49 48 38 74 19 06 42 60 20 79 90 81 77 18 51 71 27 27
53 09 93 28 29 80 19 68 30 45 94 49 49 71 21 93 93 71 30 34 52 65 83 40 13
26 36 68 48 09 37 69 26 22 80 23 34 10 45 70 83 51 07 37 44 62 96 74 42 64
Random Number Table-2
05 97 03 44 96 49 87 13 01 69 56 19 27 30 31 16 95 62 74 55
78 07 89 48 22 97 68 14 69 88 21 52 73 88 28 08 27 09 48 86
24 08 18 32 54 17 10 47 62 05 13 45 48 09 65 88 39 09 21 48
02 62 56 96 61 58 04 50 70 94 07 38 72 82 85 68 21 50 32 70
65 85 71 69 31 00 03 29 96 17 55 28 81 32 56 58 65 37 17 49

96 13 18 60 79 62 09 04 94 05 03 75 77 32 37 13 74 76 59 41
83 73 96 86 33 43 15 91 12 62 49 52 62 12 27 85 64 63 67 13
37 10 24 50 84 63 32 25 04 92 56 86 34 21 10 46 28 41 11 27
83 63 98 19 87 48 93 24 60 58 14 20 24 31 90 06 21 43 33 17
31 28 23 11 97 92 99 45 16 23 88 32 80 13 98 26 36 83 38 31

01 55 37 09 08 81 17 93 34 68 48 50 08 41 90 60 26 43 21 86
88 62 21 77 17 19 83 36 01 24 85 14 13 31 77 37 05 31 81 51
42 94 20 19 46 97 74 57 42 36 41 15 88 09 02 71 08 54 31 04
02 94 74 35 47 44 49 19 83 14 64 35 71 96 78 39 82 22 51 72
98 93 56 53 31 43 87 88 26 07 51 33 57 32 67 94 12 59 72 70
Sample as Occurred

156,037,216,552,369,561,188,451,126,
590,085,130,390,208,160,421,602,049,
541,055,465,213,478,487,555,223,259,
411,511,358,414,309,115,377,087,385,
125,048,401,086,421,207,185,530,526,
263,376,233,491,566,113,530,091,035,
478,141,218,234,538,301
156,037,216,552,369,561,188,451,126,
590,085,130,390,208,160,421,602,049,
541,055,465,213,478,487,555,223,259,
411,511,358,414,309,115,377,087,385,
125,048,401,086,421,207,185,530,526,
263,376,233,491,566,113,530,091,035,
478,141,218,234,538,301,165,564,591
 Arranged Sample

035,037,048,049,055,085,086,087,091,113,
115,125,126,130,141,156,160,165,185,188,
207,208,213,216,218,223,233,234,259,263,
301,309,358,369,376,377,385,390,401,411,
414,421,451,465,478,487,491,511,526,530,
538,541,552,555,561,564,566,590,591,602
Systematic selection
• This is a selection method in which one or two
items are selected randomly, but other items are
selected by adding the average sampling
interval to the item selected randomly. For
example, if 5 items are to be selected and the
average sampling interval is 200, the items
selected could be 14, 214, 414, 614 and 814. In
this the first item (14) is selected randomly and
subsequent items are selected by adding the
average sampling interval (200).
Stratification
• To assist in the efficient and effective design of
the sample, stratification may be appropriate.
• Stratification is the process of dividing a
population into sub-populations, each of which
is a group of sampling units, which have
similar characteristics.
• The population can be stratified based on
monetary ranges e.g expenditure, etc.
Non Statistical Selection
• The auditor uses judgement to approximate one
of the methods used in statistical sampling.
• However, the sample size should be increased
by 20 to 50 percent to compensate for the fact
that the sample may not be truly
representative.
Non Statistical Sampling….
• Periodic selection. The auditor could divide the
sample size by 52 to determine how many
sample items should be selected from each
week of the year, and then select the
appropriate number of items from the
transactions processed in each of those weeks.
If there are fewer than 52 sample items, the
auditor could use half-months or months.
Methods of Non Statistical Sampling
• High Value Items

• Key Items
Determining the Sample Size
• The following are needed to select a sample
size.
− The population value
− Materiality amount (An Error is material if the error is big
enough to influence the users of financial statements)
− Expected aggregate Error (Auditors estimate of Most
Likely Error that will exist in the financial statements)
− Confidence level
Tainting
• Tainting is the percentage by which each
physical unit is in error
= Book Value- Audit Value/ Book Value
Most Likely Error
• An estimate of the error in the population,
based on the direct extrapolation of the sample
results.