Despite the quantitative nature of statistical sampling, it does not replace professional judgment.
Auditors must use judgment to define the population, select the sampling method, evaluate evidence, consider sampling risk, and project results to the population.
Advantages:
Measures sufficiency of audit evidence.
Provides an objective basis for evaluating sample results.
Designs efficient samples.
Quantifies sampling risk to limit it to an acceptable level.
Random Sample Selection:
Methods should ensure all items have an equal chance of being included.
Attribute Sampling: Used for testing internal controls, focuses on rates of occurrence.
Variables Sampling and PPS Sampling: Used in substantive testing of account balances, focuses on numerical quantities.
Situations Where Sampling May Not Apply:
Risk assessment procedures.
Tests of automated application controls with effective general controls.
Analyses of controls without documentary evidence.
Tests related to the control environment or accounting system.
Audit Risk:
Includes uncertainties due to sampling and other factors.
Sampling Risk:
Risk of incorrect acceptance: concluding no material misstatement when there is one.
Risk of incorrect rejection: concluding a material misstatement when there is none.
Includes all audit risk aspects not due to sampling.
Cannot be measured but can be reduced through proper planning and supervision.
Purpose: Estimate the rate of occurrence of a specific attribute in a population.
Planning Considerations: Consider the sample's relationship to the objective, tolerable deviation rate, and population characteristics.
Deviation Rate vs. Tolerable Rate:
Deviation rate in the sample is the best estimate of the population deviation rate.
If the estimated deviation rate is less than the tolerable rate, the control is reliable; if not, additional procedures are needed.
Purpose: Estimate the numerical measurement of a population.
Planning Considerations:
Relationship of the sample to the audit objective.
Preliminary estimates of materiality levels and tolerable misstatement.
Auditor’s allowable risk of incorrect acceptance.
Characteristics of the population.
Sample Selection Considerations: Items subject to sampling can be separated into homogeneous groups (stratification), reducing sample size.
Auditors must document each step, including planning, rationale, procedures performed, results observed, and evaluation and interpretation of results.
For which of the following audit tests would an auditor most likely use attribute sampling?
As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was:
While performing a test of details during an audit, an auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of:
An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the:
Sample rate of deviation plus the allowance for sampling risk equals the tolerable rate.
Sample rate of deviation is less than the expected rate of deviation used in planning the sample.
Tolerable rate less the allowance for sampling risk exceeds the sample rate of deviation.
Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate.