Statistical audit sampling is a widely used approach in auditing that involves the selection of items for verification using statistical methods. This article provides an expert overview of statistical audit sampling, its purpose, and its importance in the auditing process.

What is Audit Sampling?

Audit sampling is the application of an audit procedure to a subset of items within an account balance or class of transactions. It is performed to evaluate a specific characteristic of the balance or class. Audit sampling can be categorized into two general approaches: nonstatistical and statistical. Both approaches require auditors to exercise professional judgment in planning, performing, and evaluating the sample.

The Role of Statistical Sampling

Statistical sampling plays a crucial role in audit engagements, particularly when there is a large number of items or transactions to be audited. It employs statistical methods, such as random sampling, to ensure that each item in the population has an equal chance of being selected for testing. By using statistical sampling, auditors can obtain a representative sample that reflects the characteristics of the entire population.

Sufficiency of Evidential Matter

The sufficiency of evidential matter in an audit sample is influenced by various factors, including the design and size of the sample. The size of the sample required to provide sufficient evidential matter depends on the objectives and efficiency of the sample. Through careful design, auditors can achieve the same objectives with a smaller sample size, resulting in more efficient sampling.

Audit Risk and Sampling

Audit risk encompasses both sampling risk and nonsampling risk. Sampling risk arises from the possibility that the auditor’s conclusions based on a sample may differ from the conclusions reached if the test were applied to all items in the account balance or class of transactions. Nonsampling risk includes the risk of selecting inappropriate audit procedures and failing to detect material misstatements.

Assessing Sampling Risk

Auditors must exercise professional judgment in assessing sampling risk, which includes considering the risk of incorrect acceptance and the risk of incorrect rejection. These risks relate to the auditor’s conclusions about the population based on the sample selected. Proper assessment of sampling risk is crucial in ensuring the reliability and accuracy of audit conclusions.

Planning a Sample for Substantive Tests

Planning a sample for a substantive test of details involves considering various factors. These include the relationship of the sample to the relevant audit objective, tolerable misstatement, the auditor’s allowable risk of incorrect acceptance, and the characteristics of the population being sampled. Careful planning ensures that the sample selected is appropriate for achieving the audit objectives.

Conclusion

Statistical audit sampling is a valuable technique used by auditors to select items for verification in an efficient and representative manner. By employing statistical methods, auditors can obtain sufficient evidential matter to evaluate the characteristics of an account balance or class of transactions. However, auditors must also carefully consider and assess sampling risk and exercise professional judgment throughout the sampling process.

Sources:

• Corporate Finance Institute: “Audit Sampling – Overview, Purpose, Importance, and Types” – (https://corporatefinanceinstitute.com/resources/accounting/what-is-audit-sampling/)
• PCAOB: “AS 2315: Audit Sampling” – (https://pcaobus.org/oversight/standards/auditing-standards/details/AS2315)
• ACCA Global: “Audit Sampling” – (https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/audit-sampling.html)

FAQs

Statistical Sampling Audit: An Overview

Introduction

Statistical audit sampling is a widely used approach in auditing that involves the selection of items for verification using statistical methods. This article provides an expert overview of statistical audit sampling, its purpose, and its importance in the auditing process.

What is Audit Sampling?

Audit sampling is the application of an audit procedure to a subset of items within an account balance or class of transactions. It is performed to evaluate a specific characteristic of the balance or class. Audit sampling can be categorized into two general approaches: nonstatistical and statistical. Both approaches require auditors to exercise professional judgment in planning, performing, and evaluating the sample.

Why is statistical sampling important in auditing?

Statistical sampling is important in auditing because it allows auditors to select a representative sample from a large population, ensuring that the conclusions drawn from the sample can be generalized to the entire population. It provides a systematic and objective approach to sampling, enhancing the efficiency and effectiveness of the audit process.

What is the difference between statistical and nonstatistical audit sampling?

Statistical audit sampling involves the use of statistical techniques, such as random sampling, to select items for testing. It ensures that each item in the population has an equal chance of being selected, providing a representative sample. Nonstatistical audit sampling, on the other hand, relies on judgment and experience to select items for testing without following a structured statistical approach.

How is sampling risk related to statistical audit sampling?

Sampling risk is the risk that the auditor’s conclusions based on a sample may differ from the conclusions that would be reached if the entire population were tested. In statistical audit sampling, sampling risk is inherent because auditors are making inferences about the population based on a subset of items. Proper assessment and management of sampling risk are crucial to ensure the reliability of audit conclusions.

How do auditors determine the sample size in statistical audit sampling?

The determination of the sample size in statistical audit sampling depends on various factors, including the objectives of the audit, the level of assurance desired, the characteristics of the population being sampled, and the allowable risk of incorrect acceptance. Auditors use statistical formulas, professional judgment, and considerations of materiality to determine an appropriate sample size that provides sufficient evidential matter.

What is the role of professional judgment in statistical audit sampling?

Professional judgment plays a significant role in statistical audit sampling. Auditors need to exercise judgment in planning the sample, selecting the appropriate sampling techniques, assessing sampling risk, and evaluating the results. Professional judgment ensures that the sampling process aligns with the specific audit objectives and takes into account the unique circumstances of the engagement.

How does statistical audit sampling contribute to overall audit quality?

Statistical audit sampling contributes to overall audit quality by providing a systematic and objective approach to selecting items for testing. It helps auditors obtain sufficient evidential matter to evaluate the characteristics of an account balance or class of transactions. Statistical sampling techniques enhance the efficiency and effectiveness of the audit process, increasing the likelihood of detecting material misstatements and improving audit reliability.

Can statistical audit sampling eliminate all risks in the audit process?

While statistical audit sampling reduces certain risks, it cannot eliminate all risks in the audit process. Sampling risk, which arises from the use of a sample instead of testing the entire population, is inherent in statistical sampling. Additionally, there are other risks, such as nonsampling risk, which includes the risk of selecting inappropriate audit procedures. Auditors need to consider and address these risks through proper planning, execution, and evaluation of the sampling process.

How do auditors use the results of statistical audit sampling?

The results of statistical audit sampling provide auditors with insights into the characteristics of the population being sampled. Based on the sample results, auditors make inferences about the entire population and draw conclusions regarding the specific audit objectives. The sample results help auditors assess the likelihood of material misstatements, evaluate the effectiveness of internal controls, and ultimately form an opinion on the financial statements or other audit objectives.