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1 Audit Sampling
AUD 08

2 Audit Sampling and Other Selective Testing Procedures


- PSA 500, Audit Evidence
- PSA 530, Audit Sampling and Other Selective Testing Procedures

3 Means of Selection
100% Testing
Small no. of high value items
Presence of significance risk
Feasible through CAATs

Selection of specific items

Audit Sampling

4 Audit Sampling
Involves application the application of audit procedures to less than 100% of the items within a
class of transactions or account balance where samples selected are expected to be representative
of the population.
All sampling units have a chance of selection.
Reasonable basis of the auditor to base conclusion about the population.

5 Procedures NOT Involving Sampling


Inquiry and observation
Analytical procedures
Procedures applied to every item
Controls without audit trail

6 Audit Procedures and Sampling


Risk Assessment Procedures
Ordinarily does not involve audit sampling.
Exception
Test of Controls
The auditor tests the presence or absence of attributes.
Substantive Test
Substantive analytical procedures
Substantive test of details

7 Dual Purpose Tests


Same set of samples is used to test a control and to serve as a substantive test.
select the sample size as the higher of that required for two purposes.

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8 Audit Risk and Sampling


Audit sampling and uncertainty
Eliminating uncertainty = undue delay, cost
Non-sampling risk
Aspects of audit risk not due to sampling.
Sampling Risk
Varies inversely with sample size

9 General Approaches in Sampling


Statistical sampling
Apply the laws of probability
quantify sampling risk

Non-statistical sampling
subjective


10 Types of Statistical Sampling Plan


Attributes Sampling
rate of occurrence
used in Test of Controls

11 Sample Selection Methods

12 Audit Sampling in Test of Controls


- PSA 500, Audit Evidence
- PSA 530, Audit Sampling and Other Selective Testing Procedures

13 Sampling Risks in Test of Control


Risk of assessing control risk too high (Alpha Risk)
Risk of under reliance
Affects audit efficiency.
Risk of assessing control risk too low (Beta Risk)
Risk of over reliance
Affects audit effectiveness.
More dangerous

14 Attribute Sampling
Used in test of controls
Reaches a conclusion in terms of occurrence rate or exception rate
Peso amounts are irrelevant

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15 1. Determine the Objective


Reasonable assurance about design & operating effectiveness of internal control
Used when there is an audit trail

16 2. Define the Attributes and Deviation Conditions


Attributes
characteristics indicating the operations of IC procedure.
Deviation
departure from the prescribed internal control policy or procedure.
The auditor considers the tolerable rate of deviation based on preliminary assessment of
control risk.

17 3. Define the Population


Population in Tests of Control
Class of transaction
Conclusion in TOC can be drawn only to the population from which the samples were selected
Considerations
Define the period covered by the test
Define the sampling unit
Consider the completeness of transaction

18 4. Determine the Method of Selecting Sample


Random No. Sampling

Systematic Sampling

Haphazard Sampling

19 5. Determine the Sample Size

20 6. Perform the Sampling Plan


Other Sampling Approach in TOC
Sequential Sampling (Stop-or-go)
very few expected errors
After testing a sample, the auditor decides whether to stop testing or continue with the
sampling plan.
Discovery Sampling
No expected deviations

21 7. Evaluate the Results


Evaluate whether sample results support reliance on the control procedure tested.
Evaluate the significance of control deficiency
Determine upper deviation limit
Compare the upper deviation limit with tolerable rate of deviation.

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22 7. Evaluate the Results & Document the Sampling
Procedure
Upper deviation limit
Represents sample deviation rate plus allowance for sampling risk.
The upper deviation limit is found by referring into a sampling table taking into consideration
the allowable risk of assessing control risk too low and no. of deviations.
If Upper Limit > Tolerable Rate = ICS is not effective.

23 Audit Sampling in Substantive Test


- PSA 500, Audit Evidence
- PSA 530, Audit Sampling and Other Selective Testing Procedures

24 Sampling Risks in Substantive Tests


Risk of incorrect rejection
Conclusion that the item is materially misstated but actually it is not.
Audit efficiency
Risk of incorrect acceptance
Conclusion that the item is not materially misstated, but it actually is.
Audit effectiveness
More dangerous

25 Variables Sampling
Used in substantive test procedures
Applies to test of details only.
Reaches a conclusion in terms of peso amounts.
Materiality threshold applies.

26 Steps in Variables Sampling


1. Determine the objective
2. Define the fair presentation and material misstatements
3. Define the population
4. Determine the method of selecting sample
5. Determine sample size
6. Perform the sampling plan
7. Evaluate the results & document sampling procedure

27 Sample Size in Variables Sampling

28 Projection of Errors in Substantive Tests

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Necessary before comparing the misstatements noted in sample results with materiality.

29 Probability Proportional to Size (PPS) Sampling
Uses attribute sampling theory
The auditor selects individual pesos and audit the balances, transaction or document (logical
units) that include the individual pesos selected.
The larger the size of logical unit the larger the probability of selection.
Applicable when few or no errors are expected and testing for overstatements.

30 End of Discussion
QUESTIONS

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