M A K I T A N I N Y o?

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BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
TEST YOUR KNOWLEDGE!

A U D I T Insert Running Title 2

 TEST YOUR KNOWLEDGE!

S A M P L E
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 UNIVERSITY OF SOUTHERN MINDANAO

PRINCIPLES OF AUDITING AND ASSURANCE SERVICES- CHAPTER 15

CISNEROS, Joyce Mariz E. & CARILLO, Janel Danica G.

 O Introduction

U
Nature and Purpose of Audit Sampling
T Why Auditors Sample?

O T Testing Procedures which do not Involve Sampling

Sampling vs. Non-Sampling Risk
P L
Non-statistical Sampling and Statistical Sampling
I I Attribute and Variables Sampling Techniques
 Attributes Sampling Technique
C N  Design of the Sample
 Audit Objective
E
 Population
5
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
Risk and Assurance BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO

Tolerable error
Expected error in the Population
Stratification
Performing the Audit Procedure
Evaluation of Sample Results
Analysis of Errors in the Sample
Assessing Sampling Risk
Conclusion
Detailed Audit Sampling Plan
Definition / Description of Audit Sampling Plans 6
 INTENDED LEARNING OUTCOMES

1 Understand nature and purpose of audit sampling.

2 Know the rationale for audit sampling.

3 Distinguish between sampling and non-sampling risk.

4 Know the nature of non-statistical and statistical sampling.

5 Describe the various detailed audit sampling plans.

6 Distinguish between attribute and variables sampling techniques.

7 Enumerate and explain the factors affecting sample design.

8 Understand the most commonly used sample selection methods.

9 Know the basic concepts of how sample results are evaluated. 7

INTRODUCTION

Financial statements are prepared to

provide useful information for relevant decision-
makers. However, the information provided needs
to be accurate and fairly presented.

Auditing is important to ensure that

entities are not misrepresenting their financial
statements. When auditing financial statements,
it is not feasible to audit and check every single
item within the financial statements thus…
8
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
 INTRODUCTION

A udi t

sampling

is u tilized

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 9

 SELECTING ITEMS FOR TESTING

TO GATHER AUDIT EVIDENCE

Selecting All Selecting Audit

Items Specific Items Sampling

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 10

 A Selecting ll Items

Testing the entire population of items in an account or the entire

population. This is a 100% examination because all items of the population
are selected.

Population of 1 BS Accountancy - B
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 11
WHEN TO APPLY?

The population is composed of a small number of large value

items.

The audit procedure can be automated effectively and applied

to the entire population.
The audit procedure is designed to respond to a significant risk,
and other means of selecting items for testing do not provide
sufficient appropriate audit evidence. 12
 S Selecting pecific Items

Auditors may decide to select specific items from a population based on

their understanding of the entity, assessed risk of financial
misstatement, and the characteristic of the population being tested.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 13
 SPECIFIC ITEMS
C
• All items over a certain amount- the auditor
may set a certain amount and decide to examine
account balances or class of transactions
whose recorded values exceed it.
O
• Items to obtain information- items
which contain information regarding VI
on the nature of the business or its
transactions and accounting and
internal control system. T 14
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
 SPECIFIC ITEMS
C
• High value or key items- these are
items with high value or items that
exhibit other characteristic. O
VI
• Items to test procedures- the auditor may use judgement to
select and examine specific items to determine whether or
not a particular procedure is being performed. T 15
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
 A udit Sampling

a) Sampling- It is a process where information is obtained about the

characteristics of a population of items by examining only a portion of it.

b) Audit Sampling
• It a process which auditors employ to make conclusions and express fair
opinions based on predetermined objectives without having to check all of
the items within financial statements.
• It is the use of non-statistical and statistical sampling.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 16
 T e st a s s o c i at e d wi th sa m pl i n g

1  Population - means the entire set of data from which a sample is selected and
about which the auditor wishes to draw conclusions.
2  Sampling unit - means the individual items constituting a population.
 Sampling frame - means the documentary evidence which physically
3 represents the sampling units in a given population.
 Sample - the portion of the population that will be subjected to audit testing.
4 The selected sample should be representative of the population.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 17

 T e st a s s o c i at e d wi th sa m pl i n g

 Error - For purposes of PSA 530, means either control deviations when
performing tests of control, or misstatements when performing substantive
procedures. 5
 Tolerable error - means the maximum error in a population that the auditor is
willing to accept. 6
 Stratification - is the process of dividing a population into subpopulations,
each of which is a group of sampling units which have similar characteristics 7
(often monetary value).

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 18

 W hy AUDIT SAMPLING?

• Auditors employ audit sampling so that they can save

up time and cost of examining all data while drawing
conclusions at the same time.

WHEN TO APPLY?

• the nature and materiality of the balance or class does not demand a
100% audit;
• a decision must be made about the balance or class; and
• the time and cost to audit 100% of the population would be too great.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 19
1. Tests performed on all items within a population;
2. Inquiry and observation;
-Procedures that depend on segregation of duties or that otherwise
provide no documentary evidence.
-Tracing one or few transactions to obtain an understanding of an
accounting system and its internal control.

3. Analytical Procedures

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 20

 SAMPLING AND NON-SAMPLING RISK

UNCERTAINTY OR THE ULTIMATE RISK

a degree of risk in every audit engagement even if
transactions and balances are tested 100%.
DETECTION RISK
a combination of sampling and non-sampling risks. It is
the risk that the auditors’ procedures fail to detect a
material misstatement in an account balance or class of
transaction.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 21
 NON-SAMPLING RISK

A risk that a material error will not be discovered by the auditors. It

is the failure of the auditors to catch a mistake or misstatement in
the financial statements.

It leads the auditors to have erroneous conclusion for any reason not
related to the size of the sample.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 22
 NON-SAMPLING RISK

What causes the non-sampling risk?

Misinterpreting the evidence.

Misapplying inappropriate audit procedures.

Failure to recognize errors in the documents

examined

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 23

 SAMPLING RISK

A risk that the auditors’ conclusion based

on that sample might vary from the
conclusion they would get if all items in
the account balances or class of
transactions are examined in the
population.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO

 T y pes of sa mplin g r i sk

SUBSTANTIVE TESTING
Risk of Incorrect Acceptance- The risk that a material error does not exist or the
account balances or class of transactions are not materially misstated when it
does.
Risk of Incorrect Rejection- The risk that supports the conclusion that a material
error exists or the account balances or class of transactions are materially
misstated when it does not.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 25

 T y pes of sa mplin g r i sk

TEST OF CONTROLS
Risk of overreliance- Also known as the risk of assessing control risk too low - the risk the
auditor will conclude that control risk is lower than it actually is.

Risk of under-reliance- Also known as the risk of assessing control risk too high - the risk
the auditor will conclude that control risk is higher than it actually is.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO

 EFFECTS OF SAMPLING RISK ON AUDIT

EFFICIENCY
The risk of underreliance and the risk of
incorrect rejection (both referred to as Alpha
Risk) affect audit efficiency as it would
usually lead to additional work to establish
that initial conclusions were incorrect.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 27

EFFECTS OF SAMPLING RISK ON AUDIT

EFFECTIVENESS
The risk of over-reliance and the risk of
incorrect acceptance (both referred to
as Beta Risk) affect audit effectiveness
and is more likely to lead to an
inappropriate audit opinion.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 28

 TEST YOUR KNOWLEDGE!

S T A T I S T I C A L
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 TEST YOUR KNOWLEDGE!

N O N S T A T I S T I C A L
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 NON-STATISTICAL AND

NON-STATISTICAL SAMPLING
• It is the selection of samples that is
based on the auditors’ judgement
instead of a formal statistical method.
Samples are not collected through
mathematical theorems rather, are
chosen subjectively by the auditors.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 31
 WHEN TO USE NSS?

specific records contain

sensitive information
time is inefficient to set
population size is very up statistical sample
small

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 32

THREE COMMON VARIATIONS

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 33

 HAPHAZARD SAMPLING

A sampling method used by the auditor with the intent of selecting sample
without any conscious bias. The auditors do not intend to employ any systematic
way of selecting samples and has no special reason to omit or include items for
their convenience.
• Independent
• Equal Chance
• Large Sample Size

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 34

 JUDGEMENTAL SAMPLING

Samples are chosen only on the basis of the auditors’ knowledge and judgement.
As there are chances that the results obtained will be accurate, it is not
considered as a representative selection method.

B lock S E L E C T I O N

Through block selection, samples are selected in a sequential manner. They

consist of all items in a selected time period, numerical sequence, or alphabetical
sequence.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 35

 NON-STATISTICAL AND

STATISTICAL SAMPLING
• A sampling approach where the auditors
draw conclusions about the population in
the basis of the samples which are
selected by the use of statistical methods
or mathematical tools.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 36

 CHARACTERISTICS OF

Random selection of a sample; and

The samples must be evaluated
mathematically that is, probability
theory is used to evaluate sample
results, including measurement of
sampling risk.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 37

 NON-STATISTICAL VS.

NON-STATISTICAL STATISTICAL
Sample Size Judgement only Judgement and Statistics

Sample Selection Judgement only Random

Sampling Procedures Audit Procedures Audit Procedures

Sample Evaluation Judgement only Judgement and Statistics

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 38

 NON-STATISTICAL AND

• The need to quantify sampling risk

• Cost of designing, selecting, and evaluating sample
• Availability of computer software to assist in designing,
selectin, and evaluating the sample
• Ability of the audit staff to implement any of this sampling

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 39

 ATTRIBUTE AND VARIABLE

CHARACTERISTICS OF INTEREST
Test of controls – the characteristic of interest is the deviation or occurrence rate,
which is the number of times a deviation from the prescribed internal control occurs in
the sample.

Substantive testing – the characteristic of interest is the monetary amount of

misstatement in an account balance.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 40

A tt r i b u t e s a m pl i n g t e c h n i qu e

• It is a statistical process used in the audit

procedures that aims to analyze the characteristic
of a given population. This technique is often used to
test whether or not a company’s internal controls
are correctly followed and to evaluate the fairness
of an account balance or class of transactions.
• Sampling Risk: Risk of Overreliance and Risk of
Underreliance.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 41
 A tt r i b u t e s a m pl i n g t e c h n i qu e

• Sample error rate- the random samples selected through attributes sampling,
also known as sample of frequency.
• Sample error rate = Population error rate
• Reliability- predetermined level of sampling confidence
• Actual Population Rate < Tolerable Rate
• Precision- spread between sample error rate and tolerable rate.
• Upper Precision Limit < Tolerable Error-rely on internal controls

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 42

 VARIABLE s a m pl i n g t e c h n i qu e

• A sampling plan used in substantive testing to

estimate the total peso amount (or possibly
units) of a population or the peso amount of an
error in a population.
• Sampling Risk: Risk of Incorrect Rejection and
Risk of Incorrect Acceptance.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 43

 VARIABLE s a m pl i n g t e c h n i qu e

• Sample average = population average

• Actual population average falls between decision internal, balances are fairly
stated.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 44

 SAMPLING PLAN

Determine the objective(s) of the tests

Define the population
Choose an audit sampling approach/technique
Determine sample size
Determine the method of sample selection
Performing the sampling plan
Evaluate sample results
Document the sampling plan, the procedures
performed and the conclusions reached
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 45
 FACTORS IN DESIGNING AUDIT SAMPLE

Audit Objectives
Population and Its Characteristics
Risk and Assurance
Tolerable Error
Expected Error in the Population
Stratification

P A R T S E
46
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
 AUDIT OBJECTIVES

• Auditors should consider the objectives of the

audit procedure and the attributes of the
population from which the sample will be
drawn.
• The objectives that the auditors want to
achieve must be firstly considered as well as
the audit procedures that can achieve those
objectives.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 47

POPULATION

It is the entire set of data from

which the samples are selected in
order to draw conclusion on the
characteristics of the population.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 48

 RISK AND ASSURANCE

•The auditor considers the conditions that constitute an

error by reference to the objectives of the test. This is
important so that there will be a clear understanding of
what constitutes an error to assure that the conditions
relevant to the test objectives are included in the
projection of errors.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
49
 TOLERABLE ERROR

• It is the maximum error that the auditor is willing and has prepared to accept
in a population and would allow him to still conclude that the result obtained
from the sample meet the audit objectives.
• Test of Controls: Tolerable error is the maximum deviation from the
control procedure before the auditors reassess the control risk.

Substantive Procedures: It is the maximum monetary error in an

amount that would be accepted and would still allow the auditor to
conclude that the accounts are not materially misstated.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 50
 EXPECTED ERROR

• It is the maximum error that the auditor is willing and has prepared to accept
in a population and would allow him to still conclude that the result obtained
from the sample meet the audit objectives.

Test of Controls: Expected population deviation rate

Substantive Procedures: Expected misstated amounts in the population

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 51

 FACTORS IN D etermining e x p e ct e d e r ror

Prior audit results

Changes in process or procedures

Evidence and conclusions from

other sources including test of
controls

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 52

 STRATIFICATION

• Dividing population into subpopulation with the same characteristics.

Population
(1-2,500)

1-500 501-1,000 1,001-1,500 1,501-2,000 2,001-2,500

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 53

 STRATIFICATION

 Sample items from each subpopulation are selected through random sampling.
 Account balances or class of transactions are often stratified by monetary value.
 Testing valuation of Accounts receivable is stratified by age.
 It should be noted that results generated from a stratum can only be applied to
that stratum.
 In forming conclusion for entire population, “risk and materiality” is considered.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 54

 VALUE WEIGHTED SELECTION

Identifying sampling unit as the individual monetary units that make up an account
balances.
Ensures that audit effort is directed to the larger value items because of the greater
chance in selection which then results in smaller sizes.
Ordinarily used in conjunction with systematic method of sample selection.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 55

 SAMPLE SELECTION

• All sampling units in the population can be selected.

a. Statistical Sampling – random selection

b. Non-statistical Sampling – professional judgment

• Selected Sample items should be those expected to be a

representative of population.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 56

 SELECTION METHODS FOR STATISTICAL

R3S
Random Sampling
Systematic Sampling
Stratified Random Sampling
Sampling with Probability Proportional to Size

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 57

 RANDOM SAMPLING

• random numbers are assigned so that each has a fair chance of being selected.
• correspondence is established between population and random numbers

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 58

 SYSTEMATIC SAMPLING

• selection basis is on an interval determined by dividing the number of items in the

population by the sample size or based on a certain number of items.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 59

 STRATIFIED RANDOM SAMPLING

• population is grouped into strata with similar monetary values or has the same
characteristics and then one of the sampling methods will be used.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 60

 SAMPLING WITH PROBABILITY

• emphasizes larger peso items.

• probability of being selected is directly proportional to size.
• each individual peso in the account balance has an equal chance of being selected,
but each physical unit does not.

>
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 61
 SAMPLE SIZE

• Depending on what level of sampling risk the auditor is willing to accept.

• The lower the risk, the greater size of the sample needs to be.
• Determined through:
 Statistically-based formula
 Professional judgment

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 62

 SAMPLE SIZE

• Has direct effect upon:

 Allowance for sampling risk
 Sampling risk

• As size decreases, the

allowance and the sampling
risk increases.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 63
 SAMPLE SIZE
• As population increases in size, sample size with specified sampling risk and
allowance for sampling risk increases.
• In , sample size increases as the
increases.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 64

 FACTORS INFLUENCING SAMPLE

1. Increase in the extent to which auditor’s risk The greater the reliance placed in the
assessment takes into account relevant increase operating effectiveness of controls in the risk
controls. assessment, the greater the extent of
auditor’s test of controls.
2. Increase in the tolerable rate of deviation The lower the tolerable rate, larger sample
decrease size needs to be.
3. Increase in expected deviation rate of the The auditor is in a position to make reasonable
population to be tested. increase estimate of the actual rate of deviation.
4. Increase in auditor’s desired level of The greater the level of assurance, the
assurance that actual rate of deviation does not increase greater is the needed sample size.
exceed its tolerable rate.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 65

 FACTORS INFLUENCING SAMPLE

5. Increase in the number of sampling units in For larger population – little, if any, effect on
the population. negligible effect sample size.
For small populations – audit sampling may not
be as efficient as alternative means of
obtaining sufficient appropriate audit
evidence.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 66

 FACTORS INFLUENCING SAMPLE

1. Increase in auditor’s assessment of risk of The more audit evidence obtained from test of
material misstatement increase details equals low detection risk. Hence,
sample size needs to increase.

2. Increase in the use of other substantive If the auditor relies more on substantive
procedures directed at the same assertion. decrease procedure, less assurance is needed from
sampling.
3. Increase in auditor’s desired level of The greater the level of assurance, the
assurance that tolerable misstatement is not increase greater is the needed sample size.
exceeded by actual misstatement
4. Increase in tolerable misstatement. Low tolerable misstatement, larger sample
decrease size is needed.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 67

 FACTORS INFLUENCING SAMPLE

5. Increase in the amount of misstatement In order to make a reasonable estimate of

auditor expects to find in the population. increase the actual amount of misstatement in the
population.
6. Stratification of the population when Lower variability in monetary size of items
appropriate decrease to direct efforts to the items most relevant.
7. The number of sampling units in the For larger population – little, if any, effect
population. negligible effect on sample size.
For small populations – audit sampling may
not be as efficient as alternative means of
obtaining sufficient appropriate audit
evidence..

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 68

 PERFORMING AUDIT PROCEDURE

• Perform audit procedures appropriate to the test objective on each item

selected.
• If inappropriate item had been selected, a replacement item will
ordinarily undergo the procedure.
• In events when pictured procedures cannot be applied and no
alternatives can be performed, item is considered as an “error”

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 69

 EvALUATION OF SAMPLE RESULTS

An P As
Analyze any error detected in Project the errors found in Assess the sampling
the sample. the sample to the population. risk

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 70

 ANALYSIS OF ERRORS IN THE SAMPLE

• Consider sample results, nature and cause of errors identified and their
possible effect on the test objective and other areas of the audit.
• Auditors also need to consider:
(a) Direct effect of identified errors on the financial statements
(b) Effectiveness of accounting and internal control systems and their effect on audit approach when, for
example, the errors result from management override of internal control.

Anomalous error – error arising from isolated

event that has not recurred before and is not a
representative of the population.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 71
 ANALYSIS OF ERRORS IN THE SAMPLE

• Qualitative aspects of the error should also be

considered.
• Nature and cause of error
• Possible impact on other phase of audit

• Errors with common features are stratified and

procedures are extended in this area.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 72

 PROJECTION OF ERRORS

• For substantive procedures, auditors project total error

for the population to obtain a broad view of scale of
errors, and to compare this to the tolerable error.
• *Tolerable Error – tolerable misstatement and is in the
amount less than or equal to auditor’s preliminary
estimate of materiality.
Anomalous error are excluded in the projection.
• Projected error + anomalous error are combined when considering the possible
effect of errors on total account balance or class of transactions.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 73
PROJECTION OF ERRORS

• For test of control, projection of error is unnecessary.

• The method of projection should be consistent with the
sampling method used to select the sampling unit.
• Qualitative effects should be considered.
• When stratified, projections are done separately for
each sub-population and results are added together.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 74

 ASSESSING SAMPLING RISK

• Sample results are evaluated to determine if the

preliminary assessment of the relevant characteristics
of the population is confirmed or needs to be revised.
• For test of controls, high sample error rate may lead to
increased assessed level of control risk
• For substantive procedure, high sample error rate may
make auditor believe that an account balance or class of
transaction is materially misstated.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 75
ASSESSING SAMPLING RISK

• If projected error + anomalous error < tolerable, the

persuasiveness of the results are considered.
• If preliminary assessment needs to be revised:
a) Request management to investigate identified errors and
the potential for further errors, and to make any
necessary adjustments; and /or
b) Modify planned audit procedures.
c) Consider the effect on audit report.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 76

 ASSESSING SAMPLING RISK

• In compliance procedures, when the

auditor concludes that the results do
not support his planned procedure, he
may indicate that there is an
alternative procedures to rely on.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 77

DETAILED AUDIT SAMPLING PLANS

Audit Sampling

Attribute sampling Variables Sampling in Substantive

in Test of Control Tests of Details

Statistical Non Statistical Statistical Non Statistical

Regular Discovery Sequential Probability Classical

or or Stop or Proportional to Size
Classical Go

Mean per Difference Ratio Regression

unit Estimation Estimation
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 78
 DEFINITION/DESCRIPTION OF

Attributes Sampling Plan

-used to test an entity’s rate of deviation (rate of occurrence) from a
prescribed rate of procedure. Auditors look for the presence or
absence of a control condition.
Variables Sampling Plan
-used to test whether recorded balances are fairly stated.
Statistical Sampling Plan
- laws of probability are applied to select and evaluate a sample

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 79

 DEFINITION/DESCRIPTION OF

Nonstatistical Sampling Plan

-Subjective judgment are used to determine sample size and evaluate results.

Regular or classical Attributes Sampling

-used to estimate the rate of occurrence of certain characteristics in the population.
Discovery Planning
-Designed to locate at least one deviation (exception) in the population.
-Often used in situations where a very low rate of occurrence of critical deviation are
expected.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 80
 DEFINITION/DESCRIPTION OF

Sequential (Stop or Go) Sampling

-sample is selected in several steps, with the need to perform each step conditional on the
result of the first step.
Probability Proportional to Size (PPS)
-“peso-unit sampling” uses attributes sampling theory to develop an estimate of the total peso
amount of misstatement in a population.
Classical Variables Sampling Models
- uses normal distribution theory to evaluate selected characteristics of a population based on
the sample items constituting it.
BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 81
 DEFINITION/DESCRIPTION OF

Mean-per-unit Estimation
-Enables auditors to estimate average peso value of items in the population by determining the
average value of items in a sample.
Difference Estimation
-Uses difference audited and book value of sample items to calculate estimated total audited
value of population.
-Used in lieu of ratio estimation.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 82

 DEFINITION/DESCRIPTION OF

Ratio Estimation
-Uses ratio of audited and book value of sample items to calculate estimated total
audited value of the population.
- used in lieu of difference estimation.
Regression
- Similar to difference and ratio estimation.

BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO 83

 SUMMARY

“The Basic Audit Sampling Concept Song”

Sang and Performed by: Givenzhy Czar M. Oregila
PLAY BUTTON Written by: Joyce Mariz E. Cisneros & Janel Danica Carillo

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BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO
 R efe r en ces

• Principles of Auditing and Assurance Services 2020-2021 Edition

• Elder, R. J., Akresh, A. D., Glover, S. M., Higgs, J. L., & Liljegren, J. (2013). Audit
sampling research: A synthesis and implications for future research.
AUDITING: A Journal of Practice, 32(Supplement 1), 99-129.
• Teitlebaum, A. D., & Robinson, C. F. (1975). The real risks in audit sampling. Journal
of Accounting Research, 70-91.
• www.pcaobus.org
• www.accaglobal.com
• www.cstl-hcb.semo.edu

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BASIC AUDIT SAMPLING CONCEPTS BY: CISNEROS & CARILLO