AU Section 350 - Audit Sampling Sampling and Nonsampling Risk AU Section 350 of the AICPA Professional Standards indicates that audit risk arises from sampling and nonsampling risk. When determining sample sizes, auditors should consider sampling risk, the tolerable error and the expected error. (SAS 430.3) 12. Nevertheless both probability and non-probability selection methods are considered acceptable and used in practice. Sampling risk can be considered using a non-statistical or statistical approach.

Moreover, increased regulatory requirements to provide greater assurance over internal accounting controls and company demands for greater productivity from their audit shops make statistical sampling a necessary part of the internal It looks like your browser does not have JavaScript enabled. These erroneous conclusions will more than likely lead to an incorrect opinion being formed by the auditor. Simple random sampling, such as choosing sales orders based on a random-number table, is the most common selection technique.

The starting point for the sample can be generated randomly, but ISA 530 recognises that it is more likely to be ‘truly’ random if the use of random number generators or Students must ensure they can discuss the results of audit sampling and form a conclusion as to whether additional work would need to be undertaken to reduce the risk of material Comment on this article Please enable JavaScript to view the comments powered by Disqus. You could also increase your sample, redo your calculations, and see if a larger sample size brings the computed upper deviation rate back down to under the tolerable error rate of

TABLE 2 Examples of factors influencing sample sizes for substantive procedures Conditions leading to Factor Smaller sample size Larger sample size a. What constitutes a large enough difference is a matter for professional judgement. a. It is different from other sampling approaches used by auditors in that each dollar in the population is treated as a separate sampling unit instead of each customer, invoice, check, vendor,

Both approaches require professional judgement. Random selection of the sample items, and ii. So every purchase over $50 either will or won't be authorized by a purchase order -- attribute sampling has no gray area. rate of deviation) in population Higher expected error (ie.

This rate can be determined using a simple statistical table or a manual or computer-generated computation. An auditor selects a certain number of records to estimate how many times a certain feature will show up in a population. Risk of incorrect acceptance: the risk that, although the sample result supports the conclusion that a recorded account balance or class of transactions is not materially misstated, in fact it is If auditors expect errors to be present in the population, a larger sample than when no error is expected ordinarily needs to be examined to conclude that the actual error in

Even a well-designed nonstatistical sample cannot measure the risk that the sample is not representative of the population - a distinct advantage of statistically based sampling plans. The use of non-statistical sampling in audit sampling essentially removes this probability theory and is wholly dependent on the auditor’s judgment. Likewise applying audit procedures to all items within a population which have a particular characteristic (for example, all items over a certain amount) does not qualify as audit sampling with respect It looks like your browser does not have JavaScript enabled.

c. When projecting error results, auditors would ensure that the method of projection is consistent with the method used to select the sampling unit. Assessment of control risk, supported by tests of control Lower control risk Higher control risk b. For a statistical sampling plan, the auditor's workpapers should include the essential elements, including the nature of the control tested (in the earlier example, sales order credit compliance with organizational procedure);

ACCA important dates and fees Getting started with ACCA ACCA support for trainees Supporting your ACCA members ACCA products and services Find an ACCA employer story Learning providers ACCA Approved Tolerable error is considered during the planning stage and, for substantive procedures, is related to the auditors' judgement about materiality. A higher risk of incorrect acceptance is used with a higher planned detection risk and/or other planned substantive tests. However, if the allowance for sampling risk is small or negative the auditor would conclude that a material misstatement does exist.

That decision is based on what figures you set for tolerable error, expected error, sampling risk, and confidence level. For example, if in a population of branch sales, a particular branch's sales occur only as every 100th item and the sampling interval selected is 50, the result would be that Fortunately, auditors can use statistical sampling techniques without any detailed knowledge of classical statistical theory and still accomplish their audit objectives.AttributeSamplingAttribute sampling plans represent the most common statistical application used by This estimate is directly related to sample size. Tolerable Misstatement represents the highest misstatement that could occur before the population would be considered materially misstated.

This estimate is normally based on prior experience with the client. Introduction 1. When using attribute sampling, the sampling unit is a single record or document. The expected error rate is 5 percent.

Your firm will have field procedures in place to guide you in choosing between the two options. HELPFUL LINKSCPE QuizEditorial CalendarWriter's GuidelinesIIA HomeMAGAZINESubscribeMobile AppCurrent Issue/ArchivesABOUT USStaffAdvertiseJOIN OUR COMMUNITYFollow Us on TwitterVisit Our Facebook PageSubscribe to the RSS Feed © 2016 The Institute of Internal Auditors. It looks like your browser does not have JavaScript enabled. When the expected audit evidence regarding a specific sample item cannot be obtained, auditors may be able to obtain sufficient appropriate audit evidence through performing alternative procedures.

Random selection requires the use of random number tables or computer programs to guarantee that each population item has an equal chance of selection. Systematic Sampling involves selecting every kth item In the sales order example, the upper deviation rate(9 percent) exceeds the auditor's tolerable rate (6 percent). Sample results for substantive tests are evaluated in a similar manner. This risk is similar to the risk of assessing control risk too low.

A 95 percent confidence level means the auditor assumes the risk that five out of 100 samples will not reflect the true values in the population.The auditor's assessment of the control Sampling risk for substantive procedures is one form of detection risk, which is the risk that the auditors' procedures do not detect a misstatement that exists in an account balance or If either the upper or lower limit on misstatement is greater than tolerable misstatement the auditor will conclude that a material misstatement does exist. Alternatively, if the upper deviation rate exceeds the auditor's tolerable rate, the auditor would consider the control ineffective.

The adjusted lower limit on misstatement is calculated by subtracting from the unadjusted lower limit on misstatement the estimated dollar overstatement in the population. The last three methods are referred to as non-probability (non-statistical) sample selection methods since every population item does not have a known probability of selection. Stratification enables auditors to direct audit efforts towards the items which, for example, contain the greatest potential monetary error. The individual items that make up the population are known as sampling units.