M. A.

Jingu: FCPA; PhD

Audit Sampling: ISA 530, Audit Sampling

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 What Is Audit Sampling?
All audits involve sampling because the auditor cannot examine 100% of
all transactions and account balances during a year.

The International Standards on Auditing (ISA) 530, Audit Sampling

defines audit sampling as: “The application of audit procedures to less
than 100% of items within a population of audit relevance such that all
sampling units have a chance of selection in order to provide the auditor
with a reasonable basis on which to draw conclusions about the entire
population.’

Auditing standards recognise that it would be impractical for the auditors

to examine all the items in a given population. Why audit sampling?

The answer is that the auditor needs an efficient and effective way to
reach a judgement about a population that is too large to examine 100%.
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 What Is a Sample?
A sample is a subset containing the characteristics of a larger
population A population is a group of transaction or the items
that make up an account balance.

For example, if the business made a total of 300,000 sales

transactions in a year then the 300,000 transactions of sales are
referred to as the population of sales transactions in that year.

The auditor cannot audit all of the 300,000 sales transactions.

He or she may decide to audit 15,000 of the sales transactions

only.

The 15,000 is referred to as a sample of sales transactions.

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 What Is a Sample? Continued
Likewise, if a business sales 120,000 shoes in a year then 120,000 is referred
to as a population of this item (shoes).

The auditor cannot audit all the 120,000 items. He or she may decide to
audit 6,000 of this item.

The 6,000 is referred to as a sample of items (shoes).

In certain cases a sample may be based on the amount involved. For

example, if a business purchased goods worth TZS. 250,000,000 in a year
then TZS 250,000,000 is referred to as the purchase population.

The auditor cannot audit the whole amount of TZS 250,000,000 instead he
or she may audit TZS 220,000.

The 220,000 is referred to as a sample amount TZS 250,000,000

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 The Objective of Audit Sampling
The objective of sampling is to estimate the amount of
misstatements in an underlying population such as an
account balance or a transaction.

The use of sampling is widely adopted in auditing because it

offers the opportunity for the auditor to obtain the minimum
amount of audit evidence, which is both sufficient and
appropriate, in order to form valid conclusions on the
population.

Audit sampling is also widely known to reduce the risk of

‘over-auditing’ in certain areas, and enables a much more
efficient review of the working papers.

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 Sampling Risk
However, sampling always contains some risks, i.e., the risk that the
auditors' conclusion based on a sample might be different from the
conclusion they would reach if the test were applied to the entire
population.

This occurs when the sample drawn might not be representative of a

population from which it is drawn or the sample might be too small.

Thus, in devising their samples, auditors must ensure that the sample
selected is representative of the population.

If the sample is not representative of the population, the auditor will be

unable to form an appropriate conclusion on the entire population.

For example, if the auditor tests only 20% of accounts receivables for
existence, this is hardly representative of the population, whereas, 80 %
6 would be much more representative. Specifically, the larger the sample size
the lower the sampling error
 Sampling Risk Continued
Selecting a sample out of a population aims at its being representative,
i.e. the features of the sample should be identical to those of the
population (set).

The sample not being representative may be caused by: (i) Sampling
errors; (ii) Observation errors.

The sampling error emerges when elements with features that are
different from those of the population are selected.

The observation error emerges when due to incompetence, tiredness or

boredom the auditor fails to observe the deviations in the chosen sample

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 Non-sampling risk
Non-sampling risk” arises from factors that cause the auditor to reach
an erroneous conclusion for any reason not related to the size of the
sample.

For example, ordinarily the auditor finds it necessary to rely on audit

evidence that is persuasive rather than conclusive, the auditor might
use inappropriate audit procedures, or the auditor might misinterpret
audit evidence and fail to recognize an error

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 Audit Procedure That Do Not Involve Audit
Sampling
Audit sampling is not used in all aspect of audit. It is often used in
documentation and confirmation.

It is not usually used in inquiries of the client, observation and analytical

procedures, Tests of automated information technology controls.

It is also not used when the number of items in the population is very
small

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 Types of Sampling
There are two main types of sampling: Statistical Sampling and Non-Statistical
Sampling.
Statistical sampling requires that sample items reselected at random so that each
sampling unit has a known probability of being selected. Quantitatively evaluation of
sample resultant. It requires knowledge of statistical methods.
non-statistical sampling, an auditor uses professional judgment to select the items for a
sample. Qualitative evolution of sample results. It does not required any statistical
method.

The decision whether to use a statistical or non-statistical sampling approach is a

matter for the auditor’s judgment
Statistical measurements of sampling risk are valid only when the approach adopted
has the characteristics of statistical sampling.

The purpose of sampling is to draw conclusions about the entire population, it is

important that the auditor selects a representative sample by choosing sample items,
10 which have characteristics typical of the population, and so that bias is avoided
 Q ONE you decide the following: (1) to examine all extra-large inventory items (100%), that
is, without sampling. (2) To examine the remaining inventory on sampling basis.

During your auditing you notice the following:

1. The total inventory is made up of 210 different items (number of items

2. The total inventory (210) comprises 10 extra-large items.
3. The total value of inventory TZS.120, 000,000.

After applying the audit procedures you find that The 10 extra-large inventory items have
been overstated by TZS. 500,000. You then take a representative sample of 50 items from
the remaining 200 items. You examines this sample and find that the actual value of the
sample has been overstated (misstated) by TZS.150, 000.

You then use this identified overstatement (misstatement) in a sample for determining
(projecting) the overstatement in the related population:

11(a) REQUIRED: Find the projected misstatement in the sampled population

 Choice between statistical or non statistical sampling is based on:
• Auditor’s knowledge of statistical techniques
• Cost vs. benefits relationships
 Whether the auditor requires an estimation of sampling risk
 Whether audit evidence is obtained through test of control or
substantive test
In normal sampling techniques the following steps are followed.
• Identification of the population
• Definition of an error
• Computation the appropriate sample size
• Evaluation of the results of sample
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 SOL ONE
(a) The factual misstatement identified in (i) 10 specific (extra-large) inventory items is
TShs. 500,000, and (ii) in the 50 sampled inventory items is TShs. 150,000
(b) The misstatement in the sample is used to estimate the misstatement in the
population through the process of projection. The misstatement in the sample is
projected to the population as follows

misstatement in a sample in TShs × Number of items in the population

Number of items in the sample

TShs. 150,000 × 200 items = TShs. 600,000

50 items
(c) The likely aggregate misstatement in the inventory account would be calculated by
adding the factual misstatement in the specific items and the estimated misstatement in
the sampled population.

1 Actual misstatement identified in auditing the 10 specific items: 500,000

2Misstatements in a sample projected for the population 600,000
Aggregate (total) in the population of 210 items 1,100,000
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 Q TWO During the audit you find the following:
1. Total number of accounts receivable items 200 (i.e., total number of
debtors).
2. Monetary value of the total population TShs. 950,000,000 (i.e., the
accounts receivable account balance in the statement of financial position.
3. You select specific items to be fully tested without being sampled (i.e., to
be tested 100%).
• 10 accounts receivable with values above 10,000,000 each. The value
of these 10 receivables is TZS. 120,000,000. The misstatement found in this
specific category is TZS 4,000,000
• 15 account balances with related party transactions. The value of these
15 accounts receivables is TZS. 130,000,000. The misstatement found in
this specific category
is TZS. 12,000,000
The value of items that you included in sample is TZS. 70,000,000 and
misstatements found in this sample is found to be TZS. 3,500,000
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REQUIRED, the projected misstatements in the sampled population
 SOL. 2
The projected misstatement is obtained as follows:
Misstatement in a Sample in TZS × the Population in TZS
Value of the Sample in TZS

TShs. 3,500,000 × TZS. 700,000,000 * = TZS 35,000,000

TZS 70,000,000
* In TZS.
Total population of accounts receivable 950,000,000

Less accounts examined 100% (not included in a sample)

value of 10 Extra- large accounts receivables (120,000,000)

value of 15 accounts receivable with

related party transactions) (130,000,000)

value of the sampled population 700,000,000

c)The adjusted projected misstatement is = (projected misstatement + Sampling error) =

TShs 35,000,000 + (10% of 35,000,000) = TShs . 38,500,000
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 Q THREE: During audit planning you find the following information:

1. The inventory of perfumes is made up of 280,800 perfume of different types

2. There are three types of extra-ordinary strong perfumes with very high prices. The
number of perfumes in this category is 800
3. The total value of perfumes inventory is TZS. 300,000,000

Consistent with ISA 530, Audit Sampling, you decide to audit 100% all the 800 extra-
ordinary strong perfumes with very large prices. These are specific items and won’t be
included in subsequent audit sampling. Then you take a representative sample of 7000
items from the remaining population of 280,000 (280,800 – 800) items. After applying
appropriate audit procedures you find that the 800 specific items have been misstated by
TZS. 15,000,000 and the 7,000 sampled items have been misstated by TZS. 1,200,000.

 REQUIRED Assume that the sampling error is estimated at 20% of the projected
amount, calculate the adjusted projected misstatements in the population
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 Since the number of items in the population and in the sample is known and that the
monetary value of the sample is not known the auditor should project misstatements for
the population based on the number of items.
The misstatement in the sample is projected to the population as follows

misstatement in a sample in TZS × Number of items in the population

Number of items in the sample

TZS. 1,200,000 × 280,000 items = TZS. 48,000,000

7,000
The adjusted projected misstatement is: projected misstatement + 20% sampling error.
48,000,000 + (20% of 48,000,000) = 57,600,000

the likely aggregate misstatement in the inventory account would be calculated as

follows:
1 Actual misstatement identified in auditing the specific items: 15,000,000
2 Misstatements in a sample projected for the population: 57,600,000
Aggregate (total) in the population of 280,800 perfume items: 72,600,000

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Q FOUR: Your audit plan include examining the accounts receivable by using two methods of
selecting items for testing: In one method you select some specific items for testing based on
their level of materiality. In this case ALL the specific items will be examined. By using another
method you take a sample of items from the remaining population. The sample results will be
projected to the population. During the audit you find the following:
1. Total number of accounts receivable 228
Total Value of accounts receivables: 250,000,000
2. Number of SPECIFIC accounts receivable 10
Value of specific accounts receivables 44,500,000
Misstatements identified by the specific accounts receivables: 170, 000
3. The value of items of items included in a sample is 23,700,000
4. Misstatements found in a sample 64,500
REQUIRED: Find out the following: The projected misstatements in a population. The
adjusted
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projected misstatement at an assumed sampling error of 10%
SOL FOUR The projected misstatements in the population is:

Amount of Misstatement in the sample in TZS × Value of the population in TZS

Value of the sample in TZS

TZS 64,500 × TZS. 205,500,000* = TZS. 559,272

TZS23,700,000

* TZS. 205,500,000 (250,000,000 – 44,500,000) is the sampled population. It

is found by deducting TZS. 44,500,000 from a total population of TZS.
250,000,000. The TZS. 44,500,000 is the value of the specific account that
has not been included in the sampled population as it will be examined
100%
The adjusted projected misstatements in the population at an assumed
sampling error of 10%
The projected misstatements in the population is Tzs. 559,272
Add 10% of the projected misstatements IS TZS. 55,927 (10% × 559,272)
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TShs. 615,100
 Thank Your for Your Attention

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