What Is Audit Sampling?

Audit sampling is a technique used by auditors to select a representative sample of data from a
larger population to obtain reasonable assurance that the financial statements are free of material
misstatements. This approach reduces the cost and time of conducting a full audit on the entire
population

The audit sampling process involves conducting an audit of financial statements in three phases –
planning, execution, and evaluation.

1. Planning phase- In the planning phase, the auditor determines the sample size, selects the
sampling method, and identifies the sample selection criteria.
2. Execution- During the execution phase, the auditor collects the data from the selected
sample, analyzes it, and draws conclusions based on the results.
3. Evaluation- Finally, in the evaluation phase, the auditor assesses the results and determines
the level of confidence that can be placed on the financial statements.

Types of Sampling-

1. Statistical Sampling
Statistical sampling is a method that uses probability theory to select a sample that is
representative of the population. First, the auditor determines the sample size and selects
the sample using a random or systematic selection process. Then, the auditor calculates the
sample size using statistical methods, such as a confidence level and a margin of error, to
ensure that the sample is large enough to provide reasonable assurance that the results of
the sample can be projected to the population.

2. Non-Statistical Sampling
Non-statistical sampling, on the other hand, involves using auditor judgment to select a
sample representative of the population. The auditor selects items from the population
based on materiality, risk, or unusual transactions. Non-statistical sampling can be further
classified into haphazard sampling and block sampling. Haphazard sampling involves
selecting items without any specific method, while block sampling involves selecting items in
a contiguous block.

Features of Audit sampling-

1 – Efficiency
Audit sampling can help auditors to complete an audit more efficiently. For example, the
auditor can select a representative sample for testing instead of examining every transaction
or item in the population. This can save time and resources, especially when the population
is large or complex.
 2 – Cost-Effectiveness
Conducting a full audit of a large population can be costly. Audit sampling can reduce an
audit’s cost by allowing the auditor to examine a smaller population subset.

3 – Risk Management
Audit sampling helps auditors manage audit risk as it reasonably assures that the sample
results represent the population. By testing a sample of transactions, the auditor can gain
insight into the population and identify potential risks or errors.

4 – Objectivity
Using statistical sampling methods gives the auditor an objective basis for selecting a sample.
This can increase the reliability and credibility of the audit results.

There are different types of sampling methods that auditors can use:

1. Statistical Sampling: This involves using statistical techniques to determine the sample size
and select items for testing. It aims to provide a statistically valid representation of the
population.
Example-An auditor wants to test the accuracy of inventory records in a warehouse. They use
statistical techniques to determine the sample size based on factors like the variability of
inventory items and the desired level of confidence. Then, they randomly select items from
the inventory for testing

2. Non-statistical Sampling: This method involves selecting items based on auditor judgment or
convenience rather than statistical principles. It may be used when statistical sampling is not
feasible or necessary.
Example-A store manager wants to assess the quality of customer service at their store.
Instead of using statistical methods, they randomly select feedback forms from the
suggestion box to review, believing that these forms provide a fair representation of
customer opinions.

3. Random Sampling: Items are selected randomly from the population, giving each item an
equal chance of being chosen. This helps to minimize bias and ensure that the sample is
representative of the population.
Example- A quality control manager wants to test the weight of chocolate bars produced in a
factory. They assign each bar a number and use a random number generator to select a
sample of bars for weighing, ensuring that each bar has an equal chance of being chosen.

4. Stratified Sampling: The population is divided into subgroups or strata based on certain
characteristics, and then samples are selected from each stratum. This can help ensure that
important subgroups are adequately represented in the sample.
Example- A university wants to evaluate student performance across different academic
departments. They stratify students by major and then randomly select a sample of students
from each major for assessment, ensuring representation from all departments.

5. Systematic Sampling: Items are selected at regular intervals from the population. This
method is simple to implement and may be used when the population is already ordered in
some way.
 Example- A market researcher wants to conduct a survey on customer satisfaction at a
shopping mall. They decide to survey every 10th shopper exiting the mall, creating a
systematic sampling approach where every 10th person is selected for participation

6. Haphazard Sampling: Items are selected without any specific criteria or system. While this
method is easy to implement, it may introduce bias into the sample.
Example- An auditor is reviewing employee timecards for payroll compliance. Instead of
following a structured sampling approach, they select timecards based on convenience, such
as grabbing the first few from the top of the pile, potentially introducing bias into the sample
selection process.

Process for determining sample size:

1. Define the Population: Clearly define the population you want to study. This could be the
entire population or a specific subset.

2. Select a Confidence Level: Decide on the confidence level you want to achieve. Common
confidence levels are 95% or 99%.

3. Determine the Margin of Error: Choose an acceptable margin of error. This is how much
variability you're willing to tolerate in your results.

4. Estimate the Population Variability: If you have prior knowledge of the population variability,
use it to estimate the population standard deviation. If not, you may use a conservative
estimate, or conduct a pilot study to get an initial estimate.

5. Select the Statistical Test: Determine the statistical test you plan to use for your analysis.
Different tests may require different sample sizes.

6. Calculate Sample Size: Use an appropriate formula or statistical software to calculate the
sample size based on the above parameters. Common formulas include those for estimating
means, proportions, or the difference between means or proportions

What is sample risk?

Sample risk refers to the potential for errors or biases in a sample that may affect the
accuracy or generalizability of research findings to the larger population. It encompasses
various types of risks, including:

 Sampling Bias: This occurs when certain segments of the population are
systematically overrepresented or underrepresented in the sample, leading to results
that may not be representative of the entire population.
 Selection Bias: Arises when participants are not randomly selected or when certain
groups are more likely to be included in the sample than others, skewing the results.

 Non-Response Bias: Occurs when individuals who choose not to participate in the
study differ systematically from those who do participate, leading to biased
estimates of population characteristics.

 Measurement Bias: Refers to errors in measurement or assessment methods that

may distort the true relationship between variables or characteristics being studied.

 Sampling Error: Results from random fluctuations in the sample that cause estimates
to deviate from the true population parameters. It decreases as sample size
increases but is always present to some extent.

 Undercover: This happens when certain segments of the population are not included
or are inadequately represented in the sample frame, leading to an incomplete
representation of the population.

 Volunteer Bias: Occurs when individuals who volunteer to participate in a study

differ systematically from those who do not, leading to unrepresentative samples.

 Time-Dependent Bias: Arises when the characteristics of the population change over
time, and the sample does not accurately reflect these changes.