AUDIT SAMPLING
DEFINITION
Audit sampling
It is an application of audit procedures to less than 100%of the
items within an a/c balance or class of transactions, assuming that
all sampling units have an equal chance of being selected.
Population- means entire set of data from which a sample is
selected and where an auditor would wish to draw his conclusions
Sample or sampling units- individual items making up the
population
PURPOSES OF AUDIT SAMPLING
Auditor would want to use sampling because of the following
reasons;
a) To reduce costs i.e. more time taken more audit fees is paid
b) To be timely in the exercise
c) Users of FS i.e. shareholders, other third parties e.g. banks do
not expect 100% accuracy of the accounts
d) To avoid boring of work more especially when there is
repetition of the same activities
AREAS WHERE SAMPLING DOES NOT APPLY
a) Where categories are a few in number but of great importance
i.e. fixed assets
b) Categories of special importance where materiality does not
apply e.g. directors loans or remunerations
c) All areas of high risks
d) Areas where an auditor is put upon enquiry eg. Unusual one-
off exception items
FACTORS DERTEMINING AUDIT SAMPLING
An auditor must consider the following whether to sample or not;
a) Materiality- all material items have 100% check
b) Cost and time – auditor always would want to finish the
exercise in time
c) Number of items in the population- a few in number would
require 100% check
d) Reliability of other forms sources of evidence- if are strong
then detailed test is wasting
TYPES OF SAMPLING
JUDGEMENTAL SAMPLING
Also known as non-statistical sampling, it is an approach of
selecting a sample of appropriate size on the basis of the auditor’s
judgement of what is desirable
ADVANTAGES
➢ Well understood method and refined with experience
➢ Auditors judgement and expertise can be brought into play
➢ No special knowledge of statistic is not required
➢ No time is spent on playing maths i.e. whole auditor time is
spent on auditing
DISADVANTAGES
➢ Very wasteful when sample sizes are too large
➢ Personal bias in selecting sample is not avoided
➢ No quantitative results are obtained
➢ No real logic to the selection of sample or its size
➢ Vague conclusions are reached on the evidence from sample.
STATISTICAL SAMPLING
➢ This is any approach to sampling that involves random
selection of a sample i.e. equal chance of being selected, and
use of probability theory to evaluate sample results including
measurement of sampling risk
ADVANTAGES
➢ It is scientific i.e. recommended method of sampling
➢ It is defensive i.e. can be reperformed in the same way if there
is an error
➢ It is efficient because reasonable sample sizes are used
➢ It provides good mathematical statements about probability of
being correct
DISADVANTAGES
➢ It is not fully understood so that false conclusions can be
drawn from the results
➢ Much of time is spent on mathematics rather than on auditing
➢ It is rigid and complex i.e. can give confusions
➢ Requires highly competent audit staff who have knowledge of
statistics
USES OF STATISTICAL SAMPLING
This sampling method is mostly used when;
i. Doing compliance testing i.e. sample of internal controls can
be selected to check how the system of controls are working
ii. Doing substantive testing i.e. an auditor can test the accuracy
of documents sampled
iii. Doing receivables and creditors circularization
iv. An auditor is required to do fraud investigation i.e. he can do
discovery sampling
SAMPLE SELECTION
➢ ISA530, section42 states that an auditor should select items
for the sample with the expectation that all sampling units in
the population have an equal chance of being selected.
METHODS OF SAMPLE SELECTION
a) Simple random-this method ensures that each item of the
population has an equal chance of being selected for the
sample using random number tables.
ADVANTAGES
➢ No bias in sample selection
➢ Method is fair
DISADVANTAGES
➢ Tiresome since it requires population to be listed
➢ Time consuming since each chosen item needs to be
located and questioned hence increasing audit work and
fees
b) Stratified sampling
➢ This extends the idea of simple random sampling to
ensure that heterogeneous population has its defined
strata levels taken into a/c.
➢ This means dividing the population into sub population
and it is used when parts of population have higher than
normal risk e.g. some items may be 100% checked and
remainder sampled
ADVANTAGE
➢ Free from bias i.e. considers all strata levels of a
population to have a chance of selection
DISADVANTAGES
➢ Strata levels of great importance can be selected
subjectively
➢ Increased fees due to the extra time and manpower
necessary for the organization and implementation of the
sample
➢ An extensive sampling frame is necessary
c) HAPHAZARD SAMPLING
➢ This means selecting a sample of an appropriate size on
the basis of the auditors judgement of what is desirable
and its an example of non-statistical sampling
Advantages and disadvantages are similar with those of
non- statistical sampling
d) RANDOM SYSTEMATIC
➢ This is the method of selection in which an auditor
selects items using a constant interval between selection
s. The first item may be selected on a haphazard basis,
there after sampling interval is derived by the auditor
ADVANTAGE
➢ Very simple to administer
DISADVANTAGE
➢ Bias may not be avoided on the selection of the first item
e) BLOCK SAMPLING
➢ This involves choosing at random one block of items e.g. all
January-June invoices.
➢ This method is not recommended because it does not have
the desired features
ADVANTAGES
➢ It is good alternative to cluster sampling where no sampling
frame exist
➢ Very cheap than any other method of selection since little
structure is needed in the selection of subjects
DISADVANTAGE
➢ There is an increased bias in selecting items since it is not
random sampling method