I.AUDIT SAMPLING
Definition
Audit sampling as the application of audit procedures to less than 100% of the items (in population) with an account balance or class of transactions.
Using Sampling in Auditing
Sampling is normally appropriate for areas in which there are a high number of similar transactions e.g. credit sales for the period. It may not be cost effective to test all transactions.
Sampling is not appropriate for the following situations.
- Populations are too small
- All the transactions in a particular area are material
- There is a non-homogenous population
Sampling Risk
The risk that the auditor draws a different conclusion from the results of a sample than that which would have been draw had the entire population been examined.
II.SAMPLE SIZE
When determining the sample size, auditors should consider the following issues:
- Sampling risk
When inherent risk and control risk are high, the auditor will be looking to minimize detection risk and vice versa.
High risk areas make large sample size, and vice versa
- Tolerable ( or acceptable error)
A monetary amount set by the auditor to obtain an appropriate level of assurance, and is related to the auditor’s judgement about materiality.
Large tolerable errors make small sample size, and vice versa.
- Expected error
Expected error is the actual level of error that the auditor anticipates exist in the population. Expected error is often based on past experience of previous year audit or client has alerted us to this possibility.
Large expected errors make large sample size, and vice versa.
- Stratification
The population is any group of items sharing a common characteristic, and if auditor is concerned that non-homogenous characteristic of population may make sampling difficult, so the stratification involves breaking a larger non-homogeneous population into a number of layers or strata which show homogeneous characteristics.
Practical Questions
Assume that ABC Company has the following payment vouchers (PV) and Invoices (IN).
| Type of documents | Numbers |
| Payment Vouchers (PV) | 5,000 PVs |
| Invoices (IN) | 10,000 INs |
Required
Based on your professional judgment, determine sample size?
Answer
- Risk assessment
- Internal control
Note:
- purchase and payment process (beginning/purchase request to ending of payment)
- sale and receipt process ( beginning/quotation to ending of receipt)
Source :
1.BPP University, F8 and FAU
2.Kaplan, Inc., F8 and FAU