Audit sampling
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Audit sampling
Audit sampling
We select an effective sampling method to help us achieve our audit objectives. When designing the sample, we establish what constitutes an error, analyse and prepare the population, and set a sample size.
Compliance audit
Financial audit
Planning
Ref: 14.510
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Definition
Audit sampling is the application of audit procedures to less than 100 % of items in a population, so that all individual items ("sampling units") in the population should have a chance of selection. In order to be able to form conclusions about certain defined characteristics of the population (e.g. eligibility, measurement) without testing the whole population, the sample drawn should be representative
of the population and free from bias.
The sampling population is the entire data set from which the sample will be drawn and about which the auditor wishes to draw conclusions.
Principles
When deciding which items to test, there are three main approaches available to the auditor:
selecting all items (100 % examination);
statistical sampling; and
selecting specific items (judgemental selection).
The choice of method is a matter for the auditor's professional judgement, based on risk assessment, materiality, audit efficiency and cost. The method chosen should allow us to meet the purpose of the audit procedure effectively and efficiently. When designing the sample, the auditor should consider the objectives of the audit procedure and the characteristics of the population.
Selecting all items
Selecting all items is appropriate when the number of items is small, when the risk is high, or when computer-assisted audit techniques allow all items to be tested effectively. It is more common for
substantive testing
(
tests of details
) rather than
tests of controls
.
Statistical sampling
Statistical sampling aims at representativity (i.e. the sample is similar to the population, especially in characteristics that are pertinent to the audit) in practice meaning that the sample is big enough, balanced and free from bias. Every element in the population has a chance of being selected, depending on the characteristics of the element and the sampling method.
While the results of statistical samples can be projected to the population, the results of judgemental sampling can only be used as an indication, but cannot be
extrapolated
Compliance audit
Financial audit
to the population.
The auditor performs audit procedures appropriate to the particular audit objective on each item selected.
Statistical sampling methods and approaches frequently used in the ECA audits are
Monetary unit sampling (MUS)
Simple random sampling
Stratification
Multi-stage sampling
Selecting specific items (judgemental sampling)
Judgemental sampling involves an auditor using their judgement to select items from a population in accordance with pre-determined and documented criteria. These are typically high-value or high-risk items (e.g. relatively high amounts, negative value items, etc.) or items that represent a large proportion of the area under review. Selecting specific items is useful for
tests of controls
and
substantive testing
, and also to gain an
understanding of the entity
or to confirm the auditor's
risk assessment
. This selection method cannot be used if the objective of the sample is to extrapolate the results. Where judgemental sampling is used, the auditor can normally not generalise to the non-audited part of the population.
Instructions
After having established the audit objectives to be achieved and the audit procedures which are most likely to achieve them;
define what constitutes an error
determine the population from which items will be selected;
explore the nature of the population;
select the sampling method and approach;
determine the sample size.
Define deviations (errors)
Establish criteria as to what constitutes an error, depending on the type of audit and audit objective. For example, for the sample on the reliability of accounts the criteria as to what constitutes an error depend on the type of audit objective for the specific balance sheet item being audited (see
examples of potential misstatements in financial audit
).
Make an assessment of the expected rate of error (for tests of control) and expected amount of error (for substantive tests of details) in order to determine a
sample size
.
Determine the sampling population
Determine the sampling population and sampling units: e.g.
transaction
, account balance or monetary unit.
Check that the population is appropriate, complete and accurate for the specific audit objectives; auditors may need to obtain further evidence to ensure completeness and accuracy. As sampling does not provide evidence of completeness, to satisfy this assertion always supplement the audit work with analytical review and/or evidence of the operation of controls vis- à-vis completeness.
In financial audit, the populations to be tested include the following accounts or groups of accounts:
from the financial statements: pre-financing, cut-off of accrued charges, invoices to be paid, guarantees, etc.;
from the reports on budgetary implementation: the appropriations, commitments, payments, recoveries, outstanding commitments, etc.
Any heading in the balance sheet in particular (e.g. "short-term pre-financings"), and the annual accounts in general, may comprise more than one single general ledger account. For example, there are more than 20 general ledger accounts constituting the balance-sheet heading "Short-term pre-financing". The population from which the sample will be drawn therefore often contains a number of accounts. The population can be the number of final individual amounts which constitute the year-end balance of those several accounts at 31/12/N (e.g. final balance of individual pre-financings per contract), or some specific movements (e.g. debit movements or credit movements of individual pre-financings during the year).
Explore the nature of the population
In order to choose the appropriate sample selection method and the optimal sample size, gain as much information as possible about the population. Investigate the degree of variation in population items, what is known about errors in the population (their nature, frequency, and distribution throughout the population), the existence of patterns (e.g. more errors at year-end due to increased effort to spend commitments) and the location of items (e.g. multiple member states).
Ascertain the appropriateness of the population for sampling. For instance check that:
all items pertain to the year under audit;
there is no exceptional amount which should be withdrawn, such as individual items exceeding the materiality threshold which are to be tested outside the sample;
all items pertain to the entity under audit.
Brexit-considerations
Select the sampling method and approach
The sampling method to be used should match the characteristics of the population. The following flowchart represents the process of arriving at the most suitable sampling method and approach.
Determine the sample size
When using a
statistical sampling
method, determine the minimum sample size using ECA's
Assurance model
(based on the hypothesis that the samples are randomly selected). The minimum statistical sample size to have a robust sample is 30 items for each population or sub-population for which a conclusion is to be drawn (unless the population or sub-population is around or less than 30, in which case the full population or sub-population is examined). In general, larger and stratified samples improve the precision.
Adjust the sample sizes depending on materiality and required confidence in any given case. The sample size should be sufficient to allow the auditor to conclude, at an appropriate level of
sampling risk
, that:
for tests of controls, the total rate of deviation does not exceed the tolerable rate of deviation (the rate of deviation the auditor will accept);
for substantive tests of details, the monetary amount of the deviation does not exceed that which the auditor is willing to accept.
Consider reducing the confidence level when drawing a representative sample for substantive testing if it is offset by using other substantive procedures (e.g. key and high-value item testing, analytical procedures, third party confirmation).
Resources
Underlying transactions in statement of assurance - legality and regularity
Related documents
Standards
ISA 530
ISSAI 4000
Definition
Principles
Selecting all items
Statistical sampling
Selecting specific items (judgemental sampling)
Instructions
Define deviations (errors)
Determine the sampling population
Explore the nature of the population
Select the sampling method and approach
Determine the sample size
Resources
Last Modified
: 04/09/2023 09:22
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