Monday, 30 December 2019

Unit 7: Audit Sampling

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Unit 7: Audit Sampling


Sampling is the application of an audit procedure to less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of all the items within the balance or class of transactions.

Advanced Auditing Notes   Sampling is performed because it is more efficient than testing 100% of a population.

Zero percent examination occurs when the auditor determines that a type of receipt, deduction, exemption or other item does not need to be tested.

The haphazard sampling technique is the one adopted by the auditor in cases where the sample does not follow a structured technique.

This sampling technique involves the auditor to split items included in a sample into their different sections.

The systematic sampling involves the auditor to take the number of sampling units in the population and segregate this into the sample size so as to provide a sampling interval.

Sampling risk is actually occurs when the auditor applies the procedure to the small part of the sample to judge the entire population, the result of it may be different if the population of the data contains variety, this risk is known to be the sampling risk.

Overall tax audit risk is made up of the risk of inaccurate records and the risk of misapplication of the tax law.

Sampling error refers to a statistical error to which an analyst exposes a model only because he/she is working with sample data instead of population or census data.

Statistical sampling applies the laws of probability to determine the percent likelihood that the sample does not accurately reflect the population.

A properly designed and applied non-statistical sample can provide results that are accurate and effective, but will not measure the sampling risk.

Compliance tests can be performed directly on the control feature itself or indirectly on the outcome of the control.

The main reason for performing compliance tests is to reduce the amount of substantive tests that need to be performed.

Homogeneous populations can be tested using smaller size samples since there are fewer exceptional items to skew the results.

Non-homogeneous populations require larger size samples.


Audit risk: The risk that an auditor will not discover errors or intentional miscalculations (i.e.fraud) while reviewing a company's or individuals financial statements.

Audit sampling: SAS No.defines audit sampling as the application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class (AU 350.01).

Bias problems: Unknown or unacknowledged error created during the design, measurement, sampling, procedure, or choice of problem studied.

Block sampling: Block sampling is a system of sampling that involves choosing segments of contiguous transactions for a sampling application.

Compliance tests: Audit undertaken to confirm whether a firm is following the rules and regulations (prescribed by its internal authority or control system) applicable to an activity or practice.

Audit Sampling Haphazard sampling: A non-probability sampling scheme in which population elements are Notes chosen based on convenience.

Inherent risk: The probability of loss arising out of circumstances or existing in an environment, in the absence of any action to control or modify the circumstances.

Judgment: Judgmental sampling is a non-probability sampling technique where the researcher selects units to be sampled based on their knowledge and professional judgment.

Sampling error: Sampling error is an error that occurs when using samples to make inferences about the populations from which they are drawn.

Sampling risk: Refers to the possibility that the sample drawn is not representative of the population and that, as a result, the auditor will reach an incorrect conclusion about the account balance or class of transactions based on the sample.

Sampling unit: A single section selected to research and gather statistics of the whole.

Stratified sampling: A sampling in which each element in the population has an equal chance of being chosen for the sample.

Substantive tests: A procedure used during accounting audits to check for errors in balance sheets and other financial documentation.

Systematic sampling: A method of sampling where units are selected from the sampling frame by every "nth" unit.


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