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Sampling

- Audit sampling is used to provide factual evidence and a reasonable basis to draw
conclusions about a population from which a sample is selected.
- The internal auditor should design and select an audit sample, perform audit procedures, and evaluate
sample results to obtain sufficient, reliable, relevant, and useful audit evidence to
achieve the engagements objectives.
- Sufficient, in that the information is factual, adequate, and convincing so that a prudent, informed
person would reach the same conclusions as the auditor.
- Reliable, in that the information is the best attainable information through the use of appropriate
engagement techniques.
- Relevant, in that the information supports engagement observations and recommendations and is
consistent with the objectives for the engagement.
- Useful, in that the information helps provide assurance that the organization will meet its goals.

Sampling Methodologies:

One important aspect of IT audits is sampling and sampling methodologies.

It is important to understand the different methodologies an auditor could use and when
to use which one.

The choice of methodology also affects the interpretation of the results. For example, if
the auditor discovers one or two errors in the sample, what does that mean? It could be that the
methodology chosen has an error rate that allows two errors in that particular sample (which means
there is no need to expand the sample), or it could be that the methodology chosen allows no errors at
all (which means there is trouble of some sort, even if it is just a larger sample and more work).

According to some experts, the trend today is to use less-rigorous, non-statistical


sampling to reduce cost, and there is a risk that such an approach may be substantially less capable of
detecting a material error than a statistical approach.

I.

Attribute samplingThis type of sampling enables the auditor to estimate the rate of occurrence of
certain characteristics of the population.

II. Discovery samplingThis type of sampling is designed to locate a small number of deviations or
exceptions in the population. It is most often used to detect a fraudulent transaction. If there is one
deviation (i.e., one fraudulent transaction) in the sample, the auditor must examine the population.
Discovery sampling is used primarily to detect critical deviations.
I. Classical variables sampling (CVS) This method is used to provide auditors with an estimate of a
numerical quantity, such as the balance of an account. It is primarily used by auditors to perform
substantive tests. It includes mean-per-unit estimation, ratio estimation and difference estimation. For
example, this method would be used to confirm accounts receivable.
II. Probability-proportional-to-size sampling This method develops an estimate of the total
monetary amount of misstatement in a population. Other methods are based on instances or
occurrences, but this method is based on monetary values, where higher monetary value transactions
have a higher likelihood of being chosen in a samplethus the name PPS. MUS includes:
A. A tolerable misstatement amount (the total misstatement the auditor will allow in the population).
B. Acceptable risk of incorrect acceptance (risk that the sample does not support the conclusion
about not being materially misstated, i.e., a false-positive; generally 5 percent or 10 percent).
C. Acceptable risk of incorrect rejection (opposite of b; sample shows material misstatement in
population when it is not materially misstated, i.e., a false-negative).
D. Assumption of average percent of misstatement (for items misstated, the assumed average size of
each misstatement compared to the recorded amount).
Choice of Sampling Methodology:
- The choice of a method depends on the primary purpose of the sample and substantive test.
- If the auditor needs to perform a test of control, the best choice is attribute sampling.
- If the purpose of the audit procedure is to detect fraud, then discovery sampling is the best choice.
- If the purpose is to look for material misstatements in an account balance or class of transactions, CVS
is a good choice. But require larger samples than other methods and is, therefore, costly

- PPS is designed to be especially effective in the audit of accounts receivable and inventory, with a few
exceptions, and thus is usually a better choice than classical variables

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