STATISTICAL SAMPLING
Presented
By
Arindam Nath (AAO)
ISW & IT Audit
O/o the Pr. Accountant General (Audit), Assam
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WHAT IS SAMPLING?
Defn. (SAS No. 39)
– Audit sampling is 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
Testing less than 100% of the items and then forming an
opinion about the population
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JUDGEMENTAL AND STATISTICAL SAMPLING
Audit sampling can be judgmental or statistical
– Judgmental sampling means checking a pre-determined proportion of
transactions on the basis of the auditor’s judgment without using statistical
procedures
– Sample size in statistical sampling is derived using the underlying laws
of probability
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WHY STATISTICAL SAMPLING?
OBJECTIVITY
Statistical sampling provides a measurable relationship between
the size of the sample and the degree of risk.
– The auditor can specify a definite degree of risk (assurance level) using
statistical sampling
Lower sample size needs to be checked to provide assurance
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AUDIT SAMPLING.
It enable the auditor to form certain conclusions
about that class or balance as a whole.
An auditor can apply sampling in carrying out
both compliance procedures (to evaluate the
effectiveness of the internal control system) and
substantive procedures (to obtain evidence
regarding the completeness, accuracy and
validity of the data).
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ELEMENTS OF STATISTICAL SAMPLING
The theory of statistical sampling is used in a
large number of situations where a characteristic
of a large mass of data is to be evaluated.
In auditing, the auditor has to form his opinion
about a large mass of data. Therefore, it is
possible to apply statistical sampling techniques
in auditing
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Elementary Concepts of Statistical Sampling
Sample: A sample is the part of an aggregate
selected with a view to drawing inferences about the
aggregate.
Population: The aggregate or the totality from which
the sample is drawn is called the population or the
universe.
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Cont.
Stratification: For sampling to be effective, population
should be more or less homogenous. In auditing
situations (as in many other cases), population can
seldom be homogenous in all respects.
To make sampling more efficient, the total population in
such a situation is divided into several sub-populations
(each sub-population is called 'stratum') each of which
is, in itself, more homogenous in nature.
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Cont.
each of which is, in itself, more homogenous in nature,
size, importance or other characteristics than the
population as a whole.
A sample is then selected out of each stratum.
This process is called 'stratification'.
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Cont.
Random Sample: A random sample is one
where the elements constituting the sample are
so selected that all the items in the population
have an equal chance of selection.
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Basic hypotheses
population is a homogeneous group
There is no bias in the selection of items of the
sample.
All items of the population have equal chance of
being selected in the sample.
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Approach to Statistical Sampling
Estimating the Qualitative Characteristics of a
Population
Attribute Sampling
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Cont.
Estimating the Quantitative Characteristics of a
Population
Monetary Unit Sampling
Variables Sampling:
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Sampling methods
There are different ways in which a statistical sample can
be selected.
A simple random sampling ensures that every member
of the population has an equal chance of selection..
In cases where the population is non-homogeneous, a
stratified sampling would be a better option
Each sampling method has its practical use and
limitation.
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Designing a sample
The basic stages that are involved in attributes
sampling are mentioned below:
(a) Determining the sample size
(b)Selecting the sample and performing
substantive audit tests on the sample
(c) Projecting the results
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Determining the sample size:
1.
2.
3.
4.
 Define clearly the target population and the
error/exception (attribute) that audit wishes to test.
Understand and apply
tolerable error
precision level
confidence level
occurrence rate
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Cont.
The sample size would be larger, higher the
confidence level and precision required. Also if
the occurrence rate in the population becomes
larger the size of the sample would increase.
In case of variables sampling, where the
estimate of a quantity is required, sample size
becomes a function of the standard deviation in
the population rather than the occurrence rate.
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Selecting the sample and performing
substantive audit tests on the sample
There are a large number of methods of sample selection.
The most frequently used method is random selection
Other methods are
systematic selection method
cell sampling method
Auditing software, IDEA is an efficient tool for sample
selection.
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Projecting the results
Once the audit tests are performed on the
sample, the test results need to be projected to
the population.
Following this, a conclusion has to be reached
whether the auditor can place an assurance on
the systems.
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Cont.
In a case when the computed tolerable error is
less than the tolerable error, the auditor can
place the desired assurance on the systems.
When the computed tolerable error is higher
than the tolerable error, the auditor cannot derive
assurance from the systems.
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Advantages Of SS
a. The sample result is objective and defensible.
b.Objective evaluation of a test result is possible.
c.The method provides a means of advance estimation of
sample size on an objective basis.
d.The method provides an estimate of sampling error.
e. It may give more accurate results than a 100%
examination for large population size as failure to detect
errors tend to increase if the population size is very large.
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f . It saves time and money.
g. It may be combined and evaluated even
though accomplished by different auditors.
h. It helps in bringing the observations in sharpfocus as these can be analyzed fir each type of
auditee.
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Possible areas of application
Audit of vouchers in CAP/CASS sections
During local audit
In reviews.
In revenue audit
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Thank You
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