Audit sampling

Audit sampling

To form an opinion on the financial statements, auditor needs to examine the documents, transactions and balances that were used to prepare such statements. To examine all such documents, transactions and balances is time consuming, expensive and inconvenient and unless the audit client is very small, auditor tends to rely on sampling.

Audit sampling: Is the application of audit procedures to less than 100% of items within a population of audit relevance. During sampling, all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.

Audit sample: Is the number of items included as sample that were used in the course of auditing.

Audit population: Is the entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions.

Sampling therefore occurs when the auditor draws conclusion about the entire set of information by testing a representative sample of items. The items to be selected as sample must not be biased meaning that each item must have an equal chance of being selected as a sample.

For example, if you want to examine purchases invoices, and you have 1,000 purchases invoices then, 1,000 purchases invoices represent population, however, due to time allocated and funds available for the exercise, the auditor may decide to obtain 250 invoices from that 1,000 invoices. Those 250 invoices is what is referred to as sample, and the technique used to obtain such a sample of invoices is called a sampling method or sampling technique.

Methods of audit sampling

Sampling method refers to the techniques used by the auditor in selecting the items for the sample. The sample size can be determined by the application of a statistically-based formula or through the exercise of professional judgment. Because the purpose of sampling is to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected, it is important that the auditor selects a representative sample, so that bias is avoided, by choosing sample items which have characteristics typical of the population. The principal methods of selecting samples as per ISA 530 are the use of random selection, systematic selection and haphazard selection.

Random selection

With random sampling, sample items are selected in a way that each sampling unit has a known probability of being selected.

Systematic selection

In this method, the number of sampling units in the population is divided by the sample size to give a sampling interval, for example 50, and having determined a starting point within the first 50, each 50th sampling unit thereafter is selected. Although the starting point may be determined haphazardly, the sample is more likely to be truly random if it is determined by use of a computerized random number generator or random number tables. When using systematic selection, the auditor should establish that sampling units within the population are not structured in such a way that the sampling interval corresponds with a particular pattern in the population.

Haphazard selection

Under this method, the auditor selects the sample without following a structured technique. Although no structured technique is used, the auditor should avoid any conscious bias or predictability and thus attempt to ensure that all items in the population have a chance of selection. For example, an auditor should avoid to always choosing or avoiding the first or last entries on a page, as this may lead to biased results. Haphazard selection is not a statistical sampling method.