8-1
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Chapter 8
CHAPTER 8
AUDIT SAMPLING: AN
OVERVIEW AND APPLICATION
TO TESTS OF CONTROLS
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8-2
SAMPLING DEFINED
SAS No. 39 defines audit sampling as the application of
an audit procedure to less than 100 percent of the
items within an account balance or class of
transactions for the purpose of evaluating some
characteristic of the balance or class (AU 350.01).
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8-3
AUDIT PROCEDURES THAT DO NOT
INVOLVE AUDIT SAMPLING





Inquiry and observation
Analytical procedures
Procedures applied to every item in the population
Classes of transactions or accounts not tested
Tests of automated IT controls.
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8-4
TERMINOLOGY

Sampling Risk

Precision
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TERMINOLOGY

Type I and Type II errors
 Risk of assessing CR too high / Incorrect rejection

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Risk of assessing CR too low / Incorrect acceptance
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8-6
TYPES OF AUDIT SAMPLING

Nonstatistical Sampling
--Judgmental (may not be as effective)

Statistical Sampling
--Uses probability to select and evaluate sample
--Advantages:
 Design efficient sample
 Measure sufficiency of evidence
 Quantify sampling risk
--Disadvantage: Cost of designing application and
training employees
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8-7
SAS 39 Requirements

Planning for Sample Application
Relationship of sample to objective of test
 Maximum deviation rate that would support planned
level of CR
 Risk of incorrect acceptance

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8-8
SAS 39 Requirements

Sample Selection (representative of population)

Random Number

Systematic

Haphazard
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SAS 39 Requirements

Performance Evaluation
Consider effect of not being able to apply a planned
audit procedure to a sample item
 Project results to entire population
 Give consideration to sampling risk
 Consider qualitative aspects of misstatements

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8-10
TYPES OF AUDIT SAMPLING

Types of statistical sampling techniques
 Attribute sampling
 Monetary-unit sampling
 Classical variables sampling
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ATTRIBUTE SAMPLING APPLIED TO
TESTS OF CONTROLS

Attribute Sampling: Estimates the proportion of a
population that possesses a specified characteristic.

Normally used in tests of controls (determine the
operating effectiveness of a control procedure in
terms of deviations from the prescribed internal
control).
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PHASES IN AN ATTRIBUTE
SAMPLING APPLICATION


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Planning
Performance
Evaluation
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8-13
PLANNING

Determine the tests objective(s).

Define the control deviation conditions.

Define the population.

Define the period covered by the test.

Define the sampling unit.
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PLANNING

McGraw-Hill/Irwin
Determine sample size:
 Determine acceptable risk of assessing CR too
low.

Determine tolerable deviation rate.

Determine expected population deviation rate.

Consider effect of population size.
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8-15
Effect of Sample Selection Factors on
Sample Size (Table 8-4)
Factor
Relationship to Sample Size
Acceptable risk of assessing
CR too low
Inverse
Tolerable deviation rate
Inverse
Expected population deviation rate
Direct
Population size
No effect
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PERFORMANCE

Randomly select the sample items.

Perform the audit procedures.
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SPECIAL SITUATIONS IN PERFORMING
THE AUDIT PROCEDURES

Voided documents.

Unused or inapplicable documents.

Inability to examine a sample item.

Stopping the test before completion.
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EVALUATION

Calculating the sample results.

Performing error analysis.

Drawing final conclusions
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Nonstatistical Sampling

Differences in 3 Steps
1. Determine Sample Size: Use professional judgment,
not a statistical formula. Public firms establish guidelines
(Below Max – 10 - 15; Moderate – 20 - 35; Low – 30 - 75)
2. Random Selection: Allows use of haphazard samples
3. Calculating Results: Difficult to consider effect of
sampling risk
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