Module E
Overview of Sampling
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1. Introduction



Definition
Necessary knowledge
Uses of sampling in auditing
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2. Types of Sampling

Nonstatistical



use judgment to select sample and/or
evaluate results
justification for use
Statistical


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use random selection
evaluate results mathematically
advantages
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3. Statistical Sampling Models

Attribute Sampling



fixed sample-size attribute sampling
discovery sampling
Variables Sampling

classical methods

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MPU, ratio estimation, difference estimation
PPS
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4. Random Selection
Techniques





Random number table
Computer generation
Systematic selection
Block sampling
Stratification
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5. Sampling Plan

Steps
1.
Specify audit objectives and select sampling method
2.
Define errors
3.
Define population
4.
Determine sample size
5.
Select sample
6.
Apply audit procedures
7.
Evaluate results
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6. Sampling Risks

Terms



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ACCT-4080
errors – deviations – misstatements
expected deviation rate
tolerable deviation rate
precision
reliability
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6. Sampling Risks (continued)


Nonsampling risk
Sampling risk


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Risk
Risk
Risk
Risk
of
of
of
of
assessing CR too high (underreliance)
incorrect rejection
assessing CR too low (overreliance)
incorrect acceptance
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Sampling Risk
True Population State is:
Correct
Not Correct
Correct
Correct Conclusion
β risk
Not Correct
α risk
Correct Conclusion
Sample Results
Tell You
Population is:
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Attribute Sampling (Module F)
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7. Attribute Sampling


Used to estimate the extent to which a
characteristic (attribute) exists within a population
Used in tests of controls

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ACCT-4080
Estimate the rate at which internal control policies or
procedures are not functioning as intended (deviation
rate)
Compare rate to the allowable rate (tolerable deviation
rate)
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7. Attribute Sampling

Example




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ACCT-4080
Risk of assessing CR too low: 5% (ROO)
Tolerable deviation rate: 7% (TRD)
Expected deviation rate: 2% (EPDR)
Actual number of deviations found: 2
Use tables on pages: 791, 792, 795
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7. Attribute Sampling (Con’t)

Sample Size Table (5% risk)
EDR
2%
3%
Tolerable Deviation Rate
4%
5%
6%
1.00%
*
*
156
93
78
66
2.00%
*
*
*
181
127
88
3.00%
*
*
*
*
195
129
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7. Attribute Sampling (Con’t)

Evaluation Table (5% risk)
n
No. of deviations found
2
3
4
0
1
75
4.0
6.2
8.2
10.1
11.8
13.6
80
3.7
5.8
7.7
7.7
9.5
11.1
12.7
90
3.3
5.2
6.9
8.4
9.9
11.4
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8. Evaluate Sample Results

If UL


> Tolerable Deviation Rate:
Conclude that internal control is not functioning
effectively
Options

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(ULRD)
Increase sample size in hopes of supporting planned
level of control risk
Increase level of control risk, leading to conducting
more, and more effective, substantive procedures (lower
detection risk)
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8. Evaluate Sample Results
(Con’t)

If UL


 Tolerable Deviation Rate
Conclude that the internal control is functioning
effectively
Options
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(ULRD)
Maintain planned level of control risk, leading to
conducting the planned amount of substantive tests
Consider a further reduction in control risk, leading to
conducting fewer substantive procedures (higher
detection risk)
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9. Examples - Attribute
Sampling

Case
Risk of
Overreliance
A
B
C
D
5%
5%
10%
10%
Expected
Deviation Rate
2%
4%
2%
4%
Tolerable
Deviation Rate
7%
9%
7%
9%
Errors Found
1
2
0
2
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10. Review Questions for Discussion

Module E
E.1
E.11
E.2
E.14
E.3
E.15
E.4
E.16
E.5
E.17
E.6
E.10
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