McGraw-Hill/Irwin

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Module E Overview of Sampling

Learning Objectives
1. Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Understand the basic steps and procedures used in implementing a sampling plan. Identify the two situations in which sampling is used in an audit. Understand how the basic steps and procedures used in a sampling plan apply to an audit.

2. 3. 4.

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When is Sampling Used?

Exact information not needed Large population Trades effectiveness for efficiency

Uses of Sampling in Auditing

Study and evaluation of internal control Substantive procedures

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Sampling Risk
Risk that the decision made based on the sample differs from the decision that would have been made by examining the population

Non Sampling Risk

Incorrect conclusion unrelated to the nature of the sample

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Sampling Approaches
Statistical sampling Nonstatistical sampling

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Steps in Sampling: Planning

1. Determine the objective of sampling 2. Define the characteristic of interest 3. Define the population

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Steps in Sampling: Performing

4. Determine sample size

5.

Select sample items (ensure entire population is included)

Unrestricted random selection: Systematic random selection: Block selection: Haphazard selection:

6.

Measure sample items

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Steps in Sampling: Evaluating

7. Evaluate sample results

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Precision and Reliability

Precision (Allowance for sampling risk) Reliability (Confidence) Precision Interval

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Documentation
Involves all seven steps of sampling process

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Attributes Sampling
Used to estimate the extent to which a characteristic exists within a population Used in the auditors study of internal control Goal: Estimate the rate at which the clients internal control is failing to function effectively and compare to an allowable level (tolerable rate of deviation)

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Variables Sampling
Used to estimate the amount (or value) of some characteristic of a population Used in the auditors substantive procedures Goal: Estimate the amount of misstatement in an account balance or class of transactions and compare to an allowable level (tolerable misstatement) Types of variables sampling
Monetary Unit Sampling Classical variables sampling

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Summary of Sampling Risks

Effectiveness Losses Efficiency Losses

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Overview of Audit Sampling

Planning
Determine the objective of the audit sampling application Define the characteristic of interest Define the population

Performing
Determine the sample size Select the sample items Measure (audit) the sample items

Evaluate the sample results

Document

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