Audit Sampling

Question 1

Sampling and non sampling

Answer 1

Here are some key definitions related to audit sampling:

1. Audit Sampling (Sampling):
   
   • The application of audit procedures to less than 100% of items within a population of audit relevance, ensuring all sampling units have a chance of selection. This provides a reasonable basis for drawing conclusions about the entire population.
2. Population:
   
   • The entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions.
3. Sampling Risk:
   
   • The risk that the auditor’s conclusion based on a sample may differ from the conclusion if the entire population were tested. This can lead to two types of erroneous conclusions:
     
     • Type 1 Error (TOC): Concluding that controls are more effective than they actually are.
     • Type 2 Error (TOD): Concluding that a material misstatement does not exist when it does. This affects audit effectiveness and can lead to an inappropriate audit opinion.
     • Type 3 Error (TOC): Concluding that controls are less effective than they actually are.
     • Type 4 Error (TOD): Concluding that a material misstatement exists when it does not. This affects audit efficiency and usually leads to additional work.
4. Non-Sampling Risk:
   
   • The risk of reaching an erroneous conclusion for reasons not related to sampling risk, such as using inappropriate audit procedures, misinterpreting audit evidence, or failing to recognize a misstatement or deviation.
5. Anomaly:
   
   • A misstatement or deviation that is demonstrably not representative of misstatements or deviations in a population.
6. Sampling Unit:
   
   • The individual items constituting a population. These might be physical items or data points.
7. Statistical Sampling:
   
   • An approach to sampling characterized by:
     
     • Random Selection: Randomly selecting sample items.
     • Probability Theory: Using probability theory to evaluate sample results and measure sampling risk.
8. Non-Statistical Sampling:
   
   • Also known as judgmental sampling, this approach does not use random selection or probability theory. Instead, it relies on the auditor’s judgment about the sample results.
9. Stratification:
   
   • The process of dividing a population into sub-populations, each with similar characteristics (often monetary value).
10. Tolerable Misstatement:
    
    • A monetary amount set by the auditor to obtain an appropriate level of assurance that the actual misstatement in the population does not exceed this amount. It addresses the risk that individually immaterial misstatements may aggregate to a material misstatement.
11. Tolerable Rate of Deviation:
    
    • A rate of deviation from prescribed internal control procedures set by the auditor to ensure the actual rate of deviation in the population does not exceed this rate.

These definitions help auditors understand and apply sampling techniques effectively to gather sufficient and appropriate audit evidence. If you have any further questions or need more detailed examples, feel free to ask!