What is audit sampling and what are the different types of audit sampling methods? You are on the right spot to know the answer of these questions. Go ahead to see the methods of audit sampling used in today’s era.
Audit sampling can be defined as “it is an application of audit procedures to less than cent percent Objects /items within an account balance or class of transactions”.
The auditor uses audit sampling in both compliance and substantive testing because every object/item includes an account balance or class of transactions would be costly.
The theory of audit sampling may assume that the quality or amount of a properly selected sample is indicative of the superiority or amount of the population from which the sample is selected.
See Also: Test Checking in Auditing
An auditor may not be in a spot to check hundred percent items recorded in books of accounts, He can option for audit sampling due to the time limit.
The auditor uses either statistical sampling techniques or non-statistical sampling techniques.
Statistical sampling techniques use the law of probability to make objective statements about a population. The auditor must select the sample statistically.
The sample result must be mathematically evaluated. The auditor uses probabilistic selection techniques to select a statistical sample.
Under probabilistic selection techniques, every item in the population has a known chance of being selected. Non-statistical sampling techniques usually do not use these probabilistic selection techniques.
Types of Audit Sampling Methods
The various methods of audit sampling are as under;-
A.NON-STATISTICAL SAMPLING METHOD
- JUDGEMENT SAMPLING (Test checking)
The judgment sampling requires the selection of data on the basis of auditor’s experience.
The experience and judgment are involved in checking the selected data. The auditor opinion effects, the decision for the selection of the sample.
See Also: Location of Errors
B. STATISTICAL SAMPLING METHODS
- RANDOM SAMPLING
All items are given numbers. Every item has an equal chance of selection in a sample. The calculators, computers or table can be used to select the numbers to be included in the sample.
- SYSTEMATIC SAMPLING
The systematic method can pick the first item at random and thereafter items are included under serial numbers. The sample selected may not be representative of the population.
- HAPHAZARD SAMPLING
It is an alternative to random selection when an auditor tries to draw sample from the entire population. The auditor’s personal opinion should not influence the selection of sample.
- STRATIFIED SAMPLING
Stratified sampling requires the data to be divided into sub-population. One part of data may be tested on a cent percent basis and the other part may be tested by sample.
- CLUSTER SAMPLING
The cluster sampling is possible when data is kept in-groups. A cluster is selected at random and then all items in a cluster are examined. One expense may be recorded weekly while other is kept in the month.
- BLOCK SAMPLING
The block sampling method requires the selection of one block at random. The invoices relating to one month, for example, November, are selected for sample. It is not the representative of whole data.
Factors in Determining Of Audit Sample
(1)When decisive the sample size, the auditor ought to think about sampling risk, the tolerable error, and also the expected error.
See Also: Misappropriation of Assets
(2) Sampling risk arises from the chance that the auditor conclusion, supported a sample, is also totally different from the conclusion that might be reached if the complete population was subjected to an equivalent audit procedure.
(3) The auditor is two-faced with sampling risk in each test of control and substantive procedure as follow:
(a) Tests of control
(I) Risk of underneath reliance: the danger that, though the sample result does not support the auditor’s assessment of management risk, the particular compliance rate would support such associate degree assessment.
(II) Risk of over-reliance: the danger that, though the sample result supports the auditor’s assessment of management risk, the particular compliance rate wouldn’t support like associate degree assessment.
(b) Substantive procedures
(I) Risk of incorrect rejection: the danger that, though the sample results in the supports the conclusion that a recorded account balance or category of transactions is materially misstated, actually it’s not materially misstated.
(II) Risk of incorrect acceptance: the danger that, though the sample result supports the conclusion that a recorded account balance or category or transactions aren’t materially misstated.
(4) The danger of underneath reliance and also the risk of incorrect rejection have an effect on audit potency as they’d commonly result in extra work being performed by the auditor, or the entity, which might establish that the initial conclusions were incorrect.
(5) Sample size is full of the extent of sampling risk the auditor is willing to simply accept from the results of the sample. The lower the danger the auditor is willing to simply accept, the larger the sample size ought to be.
Tolerable Error
Tolerable error is that the most error within the population that the auditor would be willing to simply accept and still concludes that the result from the sample has achieved the audit objective.
See Also: Characteristics of Vouchers
Tolerable error is taken into account throughout the design stage and, for substantive procedures, is said to the auditor’s judgment regarding materiality. The smaller the tolerable error, the larger the sample size ought to be.
In tests of management, the tolerable error is that the most rate of deviation from a prescribed management procedure that the auditor would be willing to simply accept supported the preliminary assessment of management risk.
In substantive procedures, the tolerable error is the most monetary error in an associate degree account balance or category of transactions that the auditor would be willing to simply accept.
Once the results of all audit procedures done, the auditor came is in a position to conclude with affordable assurance that the money statements aren’t materially misstated.
Expected Error
If the auditor expects an error to be a gift within the population, a bigger sample than once no error is anticipated commonly has to be examined to conclude that the particular error within the population isn’t larger than the planned tolerable error.
Smaller sample sizes area unit even once the population is anticipated to be error free. Indecisive the expected error in an exceeding population, the auditor would think about such matters as error levels known in previous audits, changes within the entity’s procedures, and proof offered from alternative procedures
Selection of The Sample
The auditor ought to choose sample things in such the simplest way that the sample is expected to be representative of the population.
This needs that everyone thing within the population has an opportunity of being selected. Whereas there are a unit variety of choice ways, unremarkably used are:
See Also: Types of Ledger Used in Auditing
Random choice, that ensures that everyone thing within the population has associate degree equal likelihood of choice, for instance, by use of random range tables.
Systematic choice, that involves choosing things employing a constant interval between picks, the primary interval having a random begin.
The interval could be supported a particular range of things (for example, each twentieth voucher number) or on financial totals (For example, every Rs 1,000 increase within the additive price of the population).
Once victimization systematic choice, the auditor would want to work out that the population isn’t structured in such a way that the sampling interval corresponds with a specific pattern within the population.
For instance, if in an exceedingly population of branch sales, specified branch’s sales occur solely as each one centesimal item and also the sampling interval selected is fifty, the result would be that the auditor would have selected all, or none, of the sales of that exact branch.
Haphazard choice, which can be a suitable various to random choice, provided the auditor tries to draw a proportional sample from the complete population with no intention to either embody or exclude specific units.
Once the auditor uses this methodology, care has to be taken to protect against creating a range that’s biased, for instance, towards things that area unit simply placed, as they will not be representative.
