BKAA 3023 Topic 6 Sampling

Topics: Sample size, Sampling, Sample Pages: 9 (556 words) Published: December 5, 2014
BKAA 3023

• 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 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.

• 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)

• 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 is that audit test do not
uncover existing deviation/exception in the
• Two causes are:
• Auditor’s failure to recognize deviation
• Inappropriate/ineffective audit procedures

• 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

• Attribute - the characteristic being tested in the
• 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.

• 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

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