Audit Sampling Kashif Anwaar

8/9/2019 Audit Sampling Kashif Anwaar

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Audit SamplingKASHIF ANWAAR

SAP FI, MBA (Finance), CFC, CIA (Part1,3,4), ICMA Prof-1,Dip. In Contract Mangement


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Definition of Samplingthe application of compliance or substantiveprocedure to less than 100% of the items withinan account balance or class of transactions to

enable the auditor to obtain and evaluateevidence of some characteristic of the class orbalance and to form or assist in forming characteristic of the class or balance and to form

or assist in forming a conclusion concerning thecharacteristic

(AICPA Definition)


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When is Sampling Used? Study and evaluation of internal control

Sampling for Internal Controls procedures to verify

compliance

(Attribute sampling)

Substantive procedures

Selecting components or transactions of account

balances for verification

(Variables sampling)


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NEED FOR SAMPLING

Saves time

Involves less cost

Is the only alternative in some cases, when 100%checking is not feasible, like blood tests.

Better results than 100% testing in some cases


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Audit Sampling

The auditor takes a sample to reach a conclusion

about the population as a whole.

It is important that the sample be representativeof the population from which it was selected.


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Methods Of Sampling Statistical:

Statistical sampling is the selection of a sub set from a

population in such a way that each sampling unit has

an equal and known chance of selection

Non Statistical:

Non statistical samples are samples selected by other

means which are intended to approximate the

representative character of a statistical sample.


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Advantages of statistical over non-statistical sampling

Because each sampling unit has an equal and known

chance of selection, there is a better chance that the

sample will be representative of the population than is the casewith a non-statistical sample. When expressing an opinion on

financial statements, having a representative sample is very

important.

Because there is a better chance that the sample will be

representative of the population, the sample results are

more objective and defensible, as are the projections of those

results to the population as a whole.


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The difference between statistical and non statisticalsampling is the method of selecting the sample items.All the planning requirements remain the same.

There are two basic sample selection rules:

The sample conclusion only applies to the population from

which it is selected

The sample should be representative of the population fromwhich it is selected.


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Sample Risk The chance that sample is not representative of

the population from which it was selected.

If it is not representative the auditor could reachan incorrect conclusion.

Due care should be taken at planning stage.


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Confidence Level The confidence level is the degree of assurance

that the auditor has that the sample isrepresentative of the population from which it

was selected.

For a 90% confidence level, there is a 90%chance that the sample will be representative of

the population from which it was selected.


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Population The basic rule states that the sample conclusion

only applies to the population from which it isselected.

If the auditor wants to rely on the internalcontrol structure for the entire year, it would bebest that is sample is taken from the entire year


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Population Size Population Size is the number of Sampling Units

in a Population

Purchases

Repairs

Receipts


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Population Value The Population Value is the Monitory amount of

the population being sampled.

e.g. Rs. 100,000,000


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Factors affecting Sample Size Confidence level

Sampling Risk

Materiality

Expected Aggregate Error

Population Value


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Sample Selection Methods Statistical:

Random

Fixed Interval (Systematic)

Cell (Random Selection) Stratified Random

Non Statistical: The objective is to try to approximate one of these

methods


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Random Selection It involves numbering of all the transactions and

then using a random number table to selectrandom numbers.


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Month Vouchers

July 12

August 72September 44

October 13

November 141

December 45

January 39

February 11

March 84

April 34

May 72

June 37

604


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Random Number Table-115 62 38 72 92 03 76 09 30 75 77 80 04 24 54 67 60 10 79 26 21 60 03 48 14

77 81 15 14 67 55 24 22 20 55 36 93 67 69 37 72 22 43 46 32 56 15 75 25 12

18 87 05 09 96 45 14 72 41 46 12 67 46 72 02 59 06 17 49 12 73 28 23 52 48

08 58 53 63 66 13 07 04 48 71 39 07 46 96 40 20 86 79 11 81 74 11 15 23 17

16 07 79 57 61 42 19 68 15 12 60 21 59 12 07 04 99 88 22 39 75 16 69 13 84

54 13 05 46 17 05 51 24 53 57 46 51 14 3 17 21 39 89 07 35 47 87 44 36 62

95 27 23 17 39 80 24 44 48 93 75 94 77 09 23 48 75 91 69 03 55 51 09 74 47

22 39 44 74 80 25 95 28 63 90 41 19 48 46 72 51 12 97 39 83 35 83 23 17 29

69 95 21 30 11 98 81 38 00 53 41 40 04 16 78 67 29 83 41 18 30 90 44 37 64

75 75 63 97 12 11 57 05 86 52 82 72 47 72 14 37 72 69 75 48 72 21 52 51 81

08 74 79 30 80 70 11 66 79 25 88 01 94 52 31 38 57 98 71 62 12 56 61 01 54

04 88 45 98 60 90 92 74 77 87 40 18 65 87 37 08 68 62 39 52 84 74 90 68 18

97 35 74 05 75 42 13 49 48 38 74 19 06 42 60 20 79 90 81 77 18 51 71 27 27

53 09 93 28 29 80 19 68 30 45 94 49 49 71 21 93 93 71 30 34 52 65 83 40 13

26 36 68 48 09 37 69 26 22 80 23 34 10 45 70 83 51 07 37 44 62 96 74 42 64


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Random Number Table-205 97 03 44 96 49 87 13 01 69 56 19 27 30 31 16 95 62 74 55

78 07 89 48 22 97 68 14 69 88 21 52 73 88 28 08 27 09 48 86

24 08 18 32 54 17 10 47 62 05 13 45 48 09 65 88 39 09 21 48

02 62 56 96 61 58 04 50 70 94 07 38 72 82 85 68 21 50 32 70

65 85 71 69 31 00 03 29 96 17 55 28 81 32 56 58 65 37 17 49

96 13 18 60 79 62 09 04 94 05 03 75 77 32 37 13 74 76 59 41

83 73 96 86 33 43 15 91 12 62 49 52 62 12 27 85 64 63 67 13

37 10 24 50 84 63 32 25 04 92 56 86 34 21 10 46 28 41 11 27

83 63 98 19 87 48 93 24 60 58 14 20 24 31 90 06 21 43 33 17

31 28 23 11 97 92 99 45 16 23 88 32 80 13 98 26 36 83 38 31

01 55 37 09 08 81 17 93 34 68 48 50 08 41 90 60 26 43 21 86

88 62 21 77 17 19 83 36 01 24 85 14 13 31 77 37 05 31 81 51

42 94 20 19 46 97 74 57 42 36 41 15 88 09 02 71 08 54 31 04

02 94 74 35 47 44 49 19 83 14 64 35 71 96 78 39 82 22 51 72

98 93 56 53 31 43 87 88 26 07 51 33 57 32 67 94 12 59 72 70


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Sample as Occurred

156,037,216,552,369,561,188,451,126,

590,085,130,390,208,160,421,602,049,541,055,465,213,478,487,555,223,259,

411,511,358,414,309,115,377,087,385,

125,048,401,086,421,207,185,530,526,

263,376,233,491,566,113,530,091,035,

478,141,218,234,538,301


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156,037,216,552,369,561,188,451,126,

590,085,130,390,208,160,421,602,049,

541,055,465,213,478,487,555,223,259,

411,511,358,414,309,115,377,087,385,

125,048,401,086,421,207,185,530,526,

263,376,233,491,566,113,530,091,035,

478,141,218,234,538,301,165,564,591


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Arranged Sample

035,037,048,049,055,085,086,087,091,113,

115,125,126,130,141,156,160,165,185,188,

207,208,213,216,218,223,233,234,259,263,

301,309,358,369,376,377,385,390,401,411,

414,421,451,465,478,487,491,511,526,530,

538,541,552,555,561,564,566,590,591,602


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Systematic selection This is a selection method in which one or two

items are selected randomly, but other items areselected by adding the average sampling interval

to the item selected randomly. For example, if 5items are to be selected and the average samplinginterval is 200, the items selected could be 14,214, 414, 614 and 814. In this the first item (14)

is selected randomly and subsequent items areselected by adding the average sampling interval(200).


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Stratification

To assist in the efficient and effective design ofthe sample, stratification may be appropriate.

Stratification is the process of dividing apopulation into sub-populations, each of whichis a group of sampling units, which have similarcharacteristics.

The population can be stratified based onmonetary ranges e.g expenditure, etc.


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Non Statistical Selection The auditor uses judgement to approximate one

of the methods used in statistical sampling.

However, the sample size should be increased by20 to 50 percent to compensate for the fact thatthe sample may not be truly representative.


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Non Statistical Sampling. Periodic selection. The auditor could divide the

sample size by 52 to determine how many sample items should be selected from each week

of the year, and then select the appropriatenumber of items from the transactions processedin each of those weeks. If there are fewer than52 sample items, the auditor could use half-

months or months.


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Methods of Non Statistical Sampling High Value Items

Key Items


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Tainting Tainting is the percentage by which each physical

unit is in error

= Book Value- Audit Value/ Book Value


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Audit Sampling Kashif Anwaar