# BKAA 3023 Topic 6 Sampling

AUDITING & ASSURANCE SERVICES

TOPIC 6 : SAMPLING

AUDIT SAMPLING

• Audit sampling is application of an audit

procedure to less than 100 percent of the items

within an account balance or class of transaction

for the purpose of evaluating some characteristic

of the balance or class (ISA 530)

• A representative sample is one in which the

characteristics in the sample of audit interest are

approximately the same as those of the population.

• In practice, an auditor can increase the likelihood

of a representative sample by using care in

designing the sampling process and selection, and

evaluating the results.

SAMPLING RISK

• Sampling risk refers to possibility that the

sample drawn is not representative of the

population, which may lead to incorrect

conclusion about the account balance or class of

transactions based on the sample

• Error Type I (alpha) and Type II (beta) sampling risk may lead to decision errors, i.e.: • Deciding that the population tested is not acceptable

when in reality it is.

• Deciding that the population tested is acceptable when in reality it is not.

SAMPLING RISK

• For Test of Control

• Type I : conclude control is not effective when in reality it is (risk of under-reliance)

• Type II : conclude control is effective when in reality it is not (risk of over-reliance)

• For Substantive Test

• Type I : sample support the conclusion that the recorded account balance is materially misstated when in fact it is

not (risk of incorrect rejection)

• Type II : sample support the conclusion that the

recorded account balance is not materially misstated

when in fact it is (risk of incorrect acceptance)

SAMPLING RISK

• How to minimize sampling risk?

• Adjusting sample size – increase sample size can reduce sampling risk

• Use appropriate sampling method – will reasonably

ensure representativeness

NON-SAMPLING RISK

• Non-sampling risk is that audit test do not

uncover existing deviation/exception in the

sample.

• Two causes are:

• Auditor’s failure to recognize deviation

• Inappropriate/ineffective audit procedures

ATTRIBUTE SAMPLING

• Attribute sampling is used to estimate the

proportion of a population that possesses a

specified characteristic

• Most common use of is for test of control

• Measurement of deviation rate provides whether

control is operating effectively and provides

support for the auditor’s set level of control risk

TERMS IN ATTRIBUTE SAMPLING

• Attribute - the characteristic being tested in the

application.

• Risk of Over-Reliance (ROR) / Risk of Incorrect

Acceptance (RIA) - the risk that the auditor is willing

to take of accepting a control as effective or a rate of

monetary misstatements as tolerable when the true

population exception rate is greater than the tolerable

exception rate.

• Tolerable Deviation Rate (TDR) - the exception rate

that the auditor will permit in the population and still

be willing to conclude the control is operating

effectively and/or the amount of monetary

misstatements in the transactions established during

the planning is acceptable.

TERMS IN ATTRIBUTE SAMPLING

• Expected Population Deviation Rate (EPDR) - the

deviation rate that the auditor expects to find in the

population before testing begins.

• Computed Upper Deviation Rate (CUDR) - the sum of

the sample deviation rate and an appropriate allowance for

sampling risk

• Desired Confidence Level – Confidence level is

complement of sampling risk. Generally when auditor

decided to rely on controls, confidence level is set at 90 or 95 percent, meaning auditor has decided to accept a 10 or

5 percent risk of accepting control is effective when in fact it is not

Please join StudyMode to read the full document