AUDIT SAMPLING

.
Audit Sampling 5/27 12
edition or th

13th edition 7/19 onwards

 An auditor cannot practically audit every item which is
found in a population e.g., all expense transactions so
a sample has to be selected to be audited
 Appropriate ways should be used to select the items
that need to tested to gather sufficient appropriate
audit evidence to come to the right conclusions
 Audit evidence is not only gained from auditing the
samples but other audit procedures such as analytical
procedures can help to corroborate the evidence
Audit Sampling 5/27 12 th
edition or
13th edition 7/19 onwards
 What is important is that the results that are
obtained from a sample should be extrapolated
and used to conclude on the population
 If there are errors in a population, they should be
extrapolated in the whole population to come to a
conclusion
 Sample size =10000
 Population= 100000
 Sample = 3 error/ mistakes
 Extrapolate to 100000 = 100000/10000*3
 30 ERRORS
Audit Sampling 5/27 12 th
edition or
13th edition 7/19 onwards
 Audit sampling – Test less than 100% with a
reasonable basis to draw conclusions e.g., there
might be 10000 items and auditing 100
 Anomaly – Misstatement/Deviation not representing
population e.g., a cash payment done during a
disaster will never happen again
 Population- Entire set of Data e.g., all the
transactions in the sales account
Audit Sampling 5/27 12 th
edition or
13th edition 7/19 onwards
 Sampling risk – Results of sample differ from
Population with same procedure
Audit Sampling 5/27 12 th
edition or
13th edition 7/19 onwards
Two types of sampling risk are identified which are:-
a) Risk that the auditor will conclude in test of controls
that controls are effective than they are or in tests of
detail that a material misstatement does not exist
when it does
Audit Sampling 5/27 12 th
edition or
13th edition 7/19 onwards
 Sampling risk – Results of sample differ from
Population with same procedure
Two types of sampling risk are identified which are:-
a) Risk that the auditor will conclude in test of controls
that controls are effective than they are or in tests of
detail that a material misstatement does not exist
when it does
Audit Sampling 5/27 12
edition or th

13th edition 7/19 onwards

 The auditor is concerned with this type of erroneous
conclusion as it affects audit effectiveness and leads
to an inappropriate audit opinion
 B) The risk that in the case of test controls, that they
are less effective than they actually are. In the case
of tests of detail that a material misstatement exists
when in fact it does not. This usually results in audit
inefficiency and more audit work being done to
establish that the initial conclusion was incorrect
Audit Sampling 5/27 12
edition orth

13th edition 7/19 onwards

 Non-sampling risk – Erroneous conclusion not related
to sampling e.g. not applying an appropriate
procedure to audit the sales transactions
 Sampling unit – Individual items constituting a
population e.g. the sales invoices listed in the sales
journal
 Statistical sampling – characteristics of random
selection of a sample and use of probability theory
theory to evaluate sample results including
measurement of sampling risk
Audit Sampling 5/27 12
edition or th

13th edition 7/19 onwards

 Stratification – Divide population into sub-population
with group of sampling units having the same
characteristics e.g debtors balances divided R1 – R10
000; R10 001 - R25 000
 Tolerable rate of deviation –a number or percentage
of deviation from prescribed internal control
procedures set by the auditor less than actual
deviation. Actual deviations should not exceed the
number/percentage set by the auditor
 Tolerable misstatement – Monetary amount set by the
auditor in respect which the auditors sets so that the
actual misstatement does not exceed this amount
Audit Sampling 5/27 12
edition orth

13th edition 7/19 onwards

 If the auditor expects a decrease in the rate of
deviation from the prescribed control procedures
when conducting a sampling exercise for test of
controls, the sample size will have to be increased
True or false? Justify
Audit Sampling
 False If the auditor expects a decrease in non-
compliance, it will be because he or she believes the
internal control is “working” based on other
information (e.g. more experienced employees now
involved in the system). The assessed risk of
misstatement is reduced and the extent of testing
(sample size) can be reduced.
Tests of controls and sampling
 The auditor needs to identify certain control
procedures such as the signature of a credit
controller on a customer order indicating credit
approval
 The auditor can test the control by getting a sample
from the entire population from the customer orders
and inspecting the authorizing signature
 The auditor should be clear about what the test
produces such as showing the orders were
processed without approval of the credit controller
Substantive procedures and sampling

 Substantive procedures are for balances and

amounts
 Sampling may be used to gather evidence relating
to gather evidence relating to one or more
assertions relating to the balance or amount e.g. a
sample of debtors may be selected for positive
identification to obtain evidence about the existence
of debtors.
Statistical vs Non-statistical approaches

 Statistical or non-statistical sampling is chosen

based on professional judgement
 Certain aspects of statistical sampling may be used
when performing a non-statistical sample
 E.g the sample size may be based on a judgement
basis (non-statistical) but the items may be chosen
using computer-generated random numbers
(statistical approach)
Statistical vs Non-statistical approaches

 Valid statistically based evaluation of sample

results takes place where all the characteristics of
sampling have been adopted e.g. sample size,
selection of items, extrapolation and evaluation,
properly applied in terms of probability theory
Statistical vs Non-statistical approaches

 Distinguish between sampling and non-statistical

sampling

Statistical sampling means any approach to

sampling that has the following characteristics
1.1 Random selection of sample.
1.2 Use of probability theory to evaluate sample
results, including measurement of sampling risk.
2. Non-statistical sampling is any sampling
approach which does not have both of the
characteristics in 1 above.
Steps in the Sampling Exercise
Step1:
Determine the objective of the procedure
- Test controls work (Test of control) e.g. for each
purchase journal entry there is a signed GRN
- -Establish assertion (Substantive testing) E.G. debtors
existence
Step 2:
Determine the procedure to be performed
- Attribute (what should be there – Invoice to GRN)
- Deviation (Absence of the attribute – Signed GRN)
Steps in the Sampling Exercise
Step 3:
Confirm that the population is appropriate (Reliable and
Relevant) and complete (Total population vs Sample)
All units in the population must be available for selection.
Extensive checks should be done on sequence and
stationery controls of documents
Step 4:
Define the units of the population/ units of the sample
(Numbering system to identify each entry i.e Invoice
1121)
Steps in the Sampling Exercise
Step 5:
Determine the sample size (Sufficient sample size to
Reduce sample risk to acceptably low level) e.g. 15
samples in 10000 items sample risk is high
Steps in the Sampling Exercise
Step 5:
Determine the sample size.
 How many items should be selected to reduce

sampling risk?
 Professional Judgement

 Statistical, use professional judgement to determine:

Steps in the Sampling Exercise
Step 5:
Determine the sample size.
 How many items should be selected to reduce sampling
risk?
 Professional Judgement

 - Confidence level: % of how often a sample will

correctly represent the population
- Tolerable misstatement/Tolerable rate of deviation:
Maximum extent of “error” that the auditor is willing to
accept and still feel that the objective of sampling
procedure has been achieved.
Steps in the Sampling Exercise
Step 6:
Select the sample
 Random: Every unit have an equal chance of
selection and selection can be made manually by
using random number tables or by computer.
 Systematic: This involves selecting a random
starting point and then selecting every, say 30th
item. R
 Haphazard: Non-statistical. “Randomly selecting
items without a statistical approach.
Steps in the Sampling Exercise
Step 6:
 Block: Selecting a block of contiguous items from
within the population (e.g invoice no 125668 to
126000
 Monetary unit sampling- MUS is a value-weighted
selection method in which the sampling unit is every
rand in the population. Every nth rand is then
selected. This will result in larger amounts being
selected because larger amounts have more rand
units .
Steps in the Sampling Exercise
Step 6:
Monetary unit sampling
E.g. if we select a sample of debtors from the debtors list,
we do not consider the individual debtors to be the
sampling unit, we regard each rand in each balance to
be the sampling unit. Therefore, if we select every
1 110th rand, the chances are that the 1 110th rand
will be contained in large balances rather than in small
balances. The debtors’ balances into which the nth rand
falls will be selected for the sample.
Steps in the Sampling Exercise
Step 7:
Perform the audit procedures as determined in step 2.
Step 8:
Analyze the nature and cause of deviations and
misstatements. (Establish if further procedures are
necessary or reassess risk i.e management override
in test of control / Errors by a temp)
Steps in the Sampling Exercise
Step 9:
Project the sample results over the population (Audit
the sample and calculate misstatement/deviations)
Step 10:
Evaluate. (Compare sample misstatement/deviation to
tolerable misstatement/deviation then conclude
based on confidence level)
Audit Sampling
 What is the difference between misstatements and
deviations in the context of audit sampling?

 Deviations and misstatements are both “errors”

uncovered when conducting an audit sample. However,
they differ in that
1.1 Deviations may be identified when testing
controls, the auditor is testing for evidence that a
control procedure has not been applied (control). E.g
tolerable devation of 3% to check that all purchase
invoices have a GRN
Audit Sampling
 What is the difference between misstatements and
deviations in the context of audit sampling?
1.2 Misstatement may be identified when the auditor

is conducting a test of detail (amount).E.G Debtors

existence that can not be ascertained to exist is
R10000.
Quiz:
The auditor’s objective when using sampling is to:
a) Keep the cost of the audit within a reasonable but
acceptable budget;
b) Provide a reasonable basis on which to draw
conclusions about the population from which the
sample is drawn;
c) Address one of the limitations of an audit;
d) Identify only those misstatements or deviations
which are material.
Quiz – Solution:
The auditor’s objective when using sampling is to:

a) Keep the cost of the audit within a reasonable but acceptable budget;

b) Provide a reasonable basis on which to draw

conclusions about the population from which the
sample is drawn;
c) Address one of the limitations of an audit;

d) Identify only those misstatements or deviations which are material.

Quiz:
The risk that the auditor’s conclusion based on a
sample may be different from the conclusion if the
entire population were subjected to the same
procedure is termed:
a) Statistical risk
b) Inherent risk
c) Sampling risk
d) Non-sampling risk
Quiz - Solution
The risk that the auditor’s conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same procedure is termed:
a) Statistical risk
b) Inherent risk

c) Sampling risk
d) Non-sampling risk
Quiz:
An approach to sampling which is based on the
random selection of the sample items and the use of
probability theory to evaluate sample results is
termed:
a) Monetary unit sampling
b) Risk based sampling
c) Audit sampling
d) Statistical sampling
Quiz - Solution
An approach to sampling which is based on the random selection of the sample items and the use of probability theory to evaluate sample results is termed:
a) Monetary unit sampling
b) Risk based sampling
c) Audit sampling

d) Statistical sampling
Quiz:
A lower level of sampling risk which the auditor is
willing to accept will:
a) Result in a smaller sample size;
b) Result in a greater sample size;
c) Have no effect on the sample size;
d) Have no effect on the sample size, but will
increase the audit risk.
Quiz - Solution
A lower level of sampling risk which the auditor is willing to accept will:
a) Result in a smaller sample size;

b) Result in a greater sample size;

c) Have no effect on the sample size;
d) Have no effect on the sample size, but will increase the audit risk.
Homework – Graded Questions
 4.5
 6.4
 7.2
 7.7
Chapter 5 - Question

You are the auditor of Blu-Pool (Pty) Limited, a company which

manufactures a wide range of swimming pool chemicals and
selling it mainly to hotels and guest lodges on credit.
You plan to test the following with different audit procedures
after selecting appropriate samples:
1. Accuracy of credit sales.
2. Occurrence of credit sales.
3. Completeness of credit sales.
4. Existence of property, plant and equipment utilised in the
manufacturing process.
5. All purchases exceeding R50 000 approved by the Chief
Financial Officer.
Chapter 5 - Question

 You are required to:

1.Explain the following terminology:
1. Audit sampling (3)
2. Stratification (2)
2. Indicate whether you will be able to test the
above objectives by applying sampling methods.
(5)
3. For each objective where sampling can be applied,
indicate the population from which the sample will be
selected. (5)
 Note: For questions 2 and 3 use the following table
Chapter 5 - Question

Test through sampling (Y/N) Y/N?

Chapter 5 - Solution

 Terminology:
1. Audit sampling: Application of audit procedures to
less than 100% of the items within a population of
audit relevance (1) such that all sampling units have a
chance of selection (1) in order to provide the auditor
with reasonable basis on which to draw conclusions
about the entire population. (1)
2. Stratification: The process of dividing a population
into sub-populations(1) , each of which is a group of
sampling units which have similar characteristics. (1)
Chapter 5 - Solution
No. 2. Test through sampling 3. Population
(Yes/No)
1. Accuracy of credit sales Sales invoices(1)
Yes (1)
2. Completeness of credit sales NA(1)
No(1)
3. Occurrence of sales Signed by customer -delivery
notes(1)
Existence of property, plant All Property, plant and
and equipment utilized in the equipment(1)
manufacturing process
Yes(1)

5. All purchases exceeding R50 Purchase Orders(1)

000 approved by the Chief
Financial Officer.
Yes(1)
Chapter 5 – Question 2

 You are the senior on the audit of Renovations (Pty)

Limited and working on the audit for the year ended 30
April 2017. The junior audit trainee has prepared the
following audit objectives relating to Operating leases:
 Rights: Renovations (Pty) Limited has the right to use
the equipment leased.
 Validity: The Operating lease is valid - the directors of
Renovations (Pty) Limited has signed a lease
agreement with Value Equipment Limited.
Chapter 5 – Question 2

 Accuracy: All details pertaining to the agreement have

been accurately disclosed in the financial statements.
 Existence: The equipment leased exists.
 You are required to:
 1. List the correct assertions relevant to Operating
leases. (5)
Chapter 5 – Question 2 solution

 1.Occurrence(1)
 2. Accuracy(1)
 3. Classifications(1)
 4. Completeness(1)
 5. Cut-off(1)
Question 3
 List the steps that are involved in the sampling
exercise. (10)
Chapter 5 – Question 3 solution

 Step 1: Determine the objectives of the procedure (1)

 Step 2: Determine the procedure to be performed (1)
 Step 3: Confirm that the population is appropriate and complete (1)
 Step 4: Define the units of the population(1)
 Step 5: Determine the sample size (1)
 Step 6: Select the sample (1)
 Step 7: Perform the audit procedures (1)
 Step 8 Analyse the nature and cause of deviations and misstatements (1)
 Step 9: Project the sample results over the population (1)
 Step 10: Evaluate the results (1)
Sampling question
 You are a member of the audit team of Fabulous (Pty)
Ltd and you are in your third year as a trainee
accountant. You have been asked to be involved in the
selection of samples for testing various transactions and
balances in the financial statements for the current audit
of. There is also a first year trainee accountant who is
working with you and since they are still new on the job,
there are some sampling terms they do not know.
Sampling question
 REQUIRED

1. Explain the following terms to the trainee accountant

a) Sampling risk (2 marks)
b) Non-sampling risk (2 marks)
c) Statistical sampling (2 marks)
d) Sampling unit (1 mark)
e) Audit sampling (2 marks)
f) Stratification (2 marks)

a) Sampling risk (2 marks)


 The risk that the auditor’s conclusion based on a sample may be different (1)
from the conclusion that would be reached if the entire population (1) were
subjected to the same audit procedure (1).
 (Limited to 2 marks)


a) Non-sampling risk (2 marks)

 It is the risk that the auditor arrives at, an erroneous conclusion (1), for any
reason not related to sampling risk (1), e.g., applying sampling plan incorrectly
(1), adopted an incorrect procedure (1), or misunderstood the results of his
sampling exercise (1)
 (Limited to 2 marks)

a) Statistical sampling (2 marks)

 Any approach to sampling that has the following characteristics:

- Random selection of a sample. (1)

- Use of probability to evaluate sample results (1), including measurement of
sampling risk. (1)

a) Sampling unit (1 mark)

 The individual items constituting a population. (1)

a) Audit sampling (2 marks)

 It involves applying audit procedures to less than 100% of the items within
a population of audit relevance (1) such that all sampling units have a
chance of selection (1) to provide the auditor with a reasonable basis to
draw conclusions about the entire population (1)

a) Stratification (2 marks)

 It is the process of dividing a population into subpopulations (1) each of

which is a group of sampling units that have similar characteristics (1)
Sampling question
1. If the sample is a non-statistical sample, on what basis
does the auditor select the sample size and the sample?
(1 mark)

2. Professional judgement (1)


Sampling question
1. The first year trainee accountant omitted a procedure in
the revenue cycle which required the tracing of invoices
to the sales journal and as a result a large number of
unrecorded sales were not detected during the audit.
Indicate with reasons whether the above situation can
be categorised as a sampling or non-sampling risk (3
marks)

Answer
 Non-sampling risk (1)
 He arrived at an erroneous conclusion because of a
reason that was not related to sampling risk (1)
 There was nothing wrong with the sampling plan, but it
was due to the inexperience of the trainee accountant
(1)
 The trainee made a mistake in his choice of procedures
and left out an important procedure in testing the
assertion for completeness of sales (1)
Sampling question
 What are the different sampling techniques that the
auditor is able to use?
Sampling techniques
Sampling techniques
 Random: Every unit have an equal chance of selection
and selection can be made manually by using random
number tables or by computer.
 Systematic: This involves selecting a random starting
point and then selecting every, say 30th item. R
 Haphazard: Non-statistical. “Randomly selecting items
without a statistical approach.
 Block: Selecting a block of contiguous items from within
the population (e.g invoice no 125668 to 126000
Sampling techniques

 Monetary unit sampling- MUS is a value-weighted

selection method in which the sampling unit is every
rand in the population. Every nth rand is then
selected. This will result in larger amounts being
selected because larger amounts have more rand
units .
Sampling techniques-Monetary unit
sampling (Continued)

E.g. if we select a sample of debtors from the

debtors list, we do not consider the individual
debtors to be the sampling unit, we regard each
rand in each balance to be the sampling unit.
Therefore, if we select every 1 110th rand, the
chances are that the 1 110th rand will be contained
in large balances rather than in small balances. The
debtors’ balances into which the nth rand falls will
be selected for the sample.
Homework Graded Questions 2024

 7.1 (Important)
 7.2
 7.4
 7.6
 7.8