Audit in CIS
Environment
Audit Sampling
Steps in Audit
Process
Audit Sampling
The application of audit procedures to less than 100% of the
items within an account balance and class of transactions
such that all sampling units have a chance of selection.
Audit sampling is done in test of control and in substantive
testing of account balances
Procedures that do not involves sampling
Inquiry and observation
Analytical Procedures
100% test of the population
Sampling Risk vs Non Sampling Risk
Sampling Risk - the possibility that the conclusion based on a
sample may be different from the conclusion reached if the
entire population (100% audit) were subjected to the same
audit procedures
Non Sampling Risk – incorrect conclusions are drawn about
the account balance or class of transactions because of human
error
Is sampling risk controllable?
Decrease the risk by:
Increase the sampling size
Use the appropriate selection method
Is non - sampling risk controllable?
Decrease the risk by:
Proper planning (when and how to analyze samples)
Adequate direction, review, supervision of the audit team (ask
help if needed)
Sampling Risk
Test of control (Chapter 6)
- Risk of under reliance (alpha risk)
- Risk of over reliance (beta risk)
Substantive test (Chapter 8 )
- Risk of incorrect rejection (alpha risk)
- Risk of incorrect acceptance (beta risk)
Basic Steps in Audit Sampling
Step 1: Define the Objective
Step 2: Determine the procedure
Step 3: Determine the sample size
Step 4: Select the sample
Step 5: Apply the procedures
Step 6: Evaluate the sample results
General Approaches to Audit Sampling:
Non-statistical and statistical sampling
Statistical Sampling
- applies mathematical rules (statistics) so that the auditor can
quantify sampling risk in planning the sample and evaluate sample
results.
- random based selection
Non-Statistical Sampling
- purely uses auditor’s judgement in estimating sampling risk ,
determining the sample size and evaluating the sample results
Determination of Sample Size for Internal Control testing
Three factors affecting the determination of sampling size for test of
control
a. Acceptable Sampling Risk (inverse with Sample size)
b. Tolerable Deviation Rate (inverse with sample size)
c. Expected Deviation Rate (direct with sample size)
Evaluate the sample results –test of Control
1. Determine the sample deviation rate (actual deviation rate)
Sample deviation rate = #of Deviation/ Sample Size
2. Compare the sample deviation rate with the tolerable deviation
rate and draw an overall conclusion about the population,
Non-statistical and statistical sampling - Test of Controls
Statistical Sampling
Random Number Selection
Systematic Selection
Non-Statistical Sampling
Haphazard Selection
Other Sampling Applications
Sequential Sampling
Discovery Sampling
Sampling for Substantive test
2 types of Substantive Testing
Substantive Analytical Procedures
Test of Details
a. Test of Details of Balances
b. Test of Details of Transactions
Basic Steps in Audit Sampling - Substantive Testing
Step 1: Define the Objective
Step 2: Determine the procedure
Step 3: Determine the sample size
Step 4: Select the sample
Step 5: Apply the procedures
Step 6: Evaluate the sample results
Determination of Sample Size for Substantive Testing
Three factors affecting the determination of sampling size for
sunstantive test
a. Acceptable Sampling Risk (inverse with Sample size)
b. Tolerable Misstatements (inverse with sample size)
c. Expected Misstatement(direct with sample size)
d. Variation in the population (direct with sample size)
Non-statistical and statistical sampling - Substantive test
Statistical Sampling
Stratified Sampling
Value Weighted Selection (Probability proportional to size
sampling) or Monetary Unit Sampling (MUS)
Basic Steps in Audit Sampling
Step 1: Define the Objective
Step 2: Determine the procedure
Step 3: Determine the sample size
Step 4: Select the sample
Step 5: Apply the procedures
Step 6: Evaluate the sample results
Evaluate the sample results - Substantive Test
1. Project the misstatement in the population (projected
misstatements)
a. Ratio Estimation
b. Difference Estimation
2. Compare the projected misstatements with tolerable
misstatements and draw and overall conclusion