What is Audit Sampling?
Audit sampling is the application of audit procedures to less than 100% of a population so the auditor can draw a conclusion about the entire population, without testing every single transaction or balance.
Audit sampling means selecting and testing a representative subset of items from a population so the results can be projected, with a known level of risk, to the population as a whole.
- •Random, probability-based selection
- •Sample results measured mathematically
- •Sampling risk is quantified
- •Requires more setup (e.g. reliability factors)
- •Selection based on auditor judgment
- •Results evaluated qualitatively
- •Sampling risk is not formally quantified
- •Faster to apply, relies on experience
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Step-by-step worked examples
A population of accounts receivable has a book value of $3,000,000. Using a reliability factor of 3.0 and tolerable misstatement of $150,000, what is the sample size?
n = (BV × RF) / TM n = ($3,000,000 × 3.0) / $150,000 = $9,000,000 / $150,000 = 60 items
An auditor tests 80 sampled invoices and finds 2 errors, totaling $4,000 in overstatement. The sample covered $400,000 of the $2,000,000 population. What is the projected misstatement?
Sample proportion = $400,000 / $2,000,000 = 0.20 (20% of population) Projected misstatement = Sample misstatement / Sample proportion = $4,000 / 0.20 = $20,000
Tolerable misstatement is $80,000 and the reliability factor is 3.0 for a $2,400,000 population. Find the required sample size.
n = (BV × RF) / TM n = ($2,400,000 × 3.0) / $80,000 = $7,200,000 / $80,000 = 90 items
Flashcards
Quick quiz
Q1.What does audit sampling allow an auditor to do?
Q2.BV = $1,800,000, RF = 3.0, TM = $90,000. What is the sample size?
Q3.Which sampling method quantifies sampling risk mathematically?
Q4.If tolerable misstatement decreases, what happens to the required sample size (all else equal)?
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Common mistakes
Assuming a larger sample always eliminates sampling risk. — Correct: Sampling risk can be reduced but never eliminated unless 100% of the population is tested.
Using non-statistical sampling and claiming a precise confidence level. — Correct: Confidence levels can only be mathematically stated for statistical sampling.
Ignoring the population's book value when calculating sample size. — Correct: Population size directly drives sample size in monetary unit sampling — n = (BV × RF) / TM.
Projecting sample errors without adjusting for the sample's proportion of the population. — Correct: Projected misstatement = Sample misstatement ÷ Sample proportion of the population.
FAQ
What is audit sampling?
Audit sampling is applying audit procedures to a subset of a population so results can be projected to the entire population.
What is the audit sampling formula for sample size?
In monetary unit sampling: n = (Population Book Value × Reliability Factor) / Tolerable Misstatement.
What are examples of audit sampling techniques?
Monetary unit sampling (PPS), attribute sampling for controls testing, and classical variables sampling are common techniques.
How to calculate audit sample size?
Multiply the population book value by the reliability factor (based on confidence level), then divide by the tolerable misstatement.