ISA 530 - Audit Sampling

Question 1

ISA 530

Audit Sampling

Answer 1

AIM of audit sampling:

To draw conclusions about a population by testing a small part of it. (The basic assumption being that the sample selected is representative of the population)

Sampling risk:

It is the risk that sample selected by the auditor may not be representative of population. Meaning: the PROJECTION made by auditor is INCORRECTLY DETERMINED.

Use of BIG DATA & ANALYTICS:

The transformed audit will expand beyond sample-based testing to include analysis of entire populations of audit-relevant data (transaction activity and master data from key business processes), using intelligent analytics to deliver a higher quality of audit evidence and more relevant business insights.

Big data and analytics are enabling auditors to better identify financial reporting, fraud and operational business risks and tailor their approach to deliver a more relevant audit

Question 2

ISA 530

TEST OF CONTROL & TEST OF DETAIL

Answer 2

Sampling & TESTS OF CONTROL (Attribute sampling)

Calculate sample size (ORIGINAL sample)
2. Select sample (RANDOM selection)
3. Test sample (Cary out Tests of Control)
4. Deficiencies found
5. EXTEND sample (Same test of control - Still RANDOM selection) TO FIND OUT whether one - off or recurring.
6. Compare PROJECTED DEVIATION RATE (PDR)
with Tolerable Error (TE)
7. FURTHER ACTION (Refer ISA 265)
- Discuss deficiency with management ASAP
- Determine whether mere deficiencies or significant deficiencies
- Write Management Letter

Sampling & TESTS OF DETAIL (Variables sampling)

1. Calculate sample size
2. Select sample (RANDOM selection)
3. Test sample (Carry out Tests of Detail)
4. Misstatements found
5. FIND OUT whether misstatements are one-off or recurring.
6. Calculate PROJECTED MISSTATEMENTS
7. Update Summary of Uncorrected Misstatements

Question 3

ISA 530

Methods of AUDIT SAMPLING

Answer 3

STATISTICAL - Probability theory is used toCALCULATE sample size
Probability theory is used to evaluate the results of audit test

Advantages
− Sample size is not too large, therefore, efficient
− Sample size is not too small.
− Sufficient evidence.
− Able to extrapolate results to population.
− Quantifies sampling risk
− Scientific & defensible in a court of law.

NON-STATISTICAL (Judgement sampling) - Auditor’s
judgment is used to DECIDE sample size

Auditor’s judgment is used to evaluate the results of audit test

Question 4

ISA 530

Methods of Sample SELECTION

Answer 4

Random selection requires the use of random number tables in order to ensure every item in population has an equal chance of selection.
This method will result in a representative selection.

Haphazard selection is where the auditor picks the sample ‘at will’. This method will result in a representative selection PROVIDED bias not introduced.

Systematic - A sampling method which involves having a constant interval (n) between the items,
PROVIDED the starting point for testing is determined randomly. After that, select every nth item

This method will result in a representative selection.
Monetary Unit sampling is an example of Systematic Sampling

Block - Involves selecting a block(s) of contiguous items from within a population.
This method will NOT result in a representative selection.
Methods of Sample SELECTION