ISA (UK) 530: Audit Sampling

 Audit sampling is the practice of applying audit methods to a subset of the items in a population that are relevant to the audit so that all sampling units have a chance of being chosen and the auditor has a solid foundation from which to infer information about the complete population. The goal of the audit procedure and the characteristics of the population from which the sample will be formed must both be taken into account by the auditor when creating an audit sample. The auditor must choose a sample size large enough to lower sampling risk to a tolerable level. The sample's items must be chosen by the auditor in a way that gives each sampling unit in the population a chance to be chosen.

ISA (UK) 530 recognizes that there are many methods of selecting a sample, but it considers five principal methods of audit sampling which are as follows:

§  random selection: This method of sampling ensures that all items within a population stand an equal chance of selection by the use of random number tables or random number generators.

§  systematic selection: The method divides the number of sampling units within a population into the sample size to generate a sampling interval.

§  monetary unit sampling: The method of sampling is a value-weighted selection whereby sample size, selection and evaluation will result in a conclusion in monetary amounts.

§  haphazard selection: When the auditor uses this method of sampling, he does so without following a structured technique.

§  block selection: This method of sampling involves selecting a block (or blocks) of contiguous items from within a population.

On each chosen item, the auditor must conduct audit methods suited to the purpose. The auditor must undertake the audit procedure on a different item if the chosen item does not fall inside the purview of the audit procedure. The auditor must treat a particular item as a deviation from the required control in tests of controls or as a misstatement in tests of details if the auditor is unable to apply the specified audit procedures or appropriate alternative procedures to it.

Any deviations or misstatements must be investigated for their nature and origin by the auditor, who must also assess any potential impact on the audit's overall objective and other audited areas. The auditor must establish with a high degree of certainty that any misstatement or deviation found in a sample that the auditor deems to be an anomaly is not indicative of the population, which happens in very few cases. The auditor must execute extra audit processes to collect adequate, relevant audit proof that the error or deviation does not influence the rest of the population in order to reach this level of assurance.

In designing samples, the auditors identify acceptable misstatements to address the risk that a combination of individual material misstatements may lead to material misstatements in the financial statements and provide a margin of error for misstatements that may go undetected. Tolerable error is the application of performance materiality to a particular sampling procedure. Acceptable misstatement may be equal to or less than the materiality of the performance.

Practice:

When designing an audit sample, the auditor should consider objectives to be achieved and the combination of audit procedures likely to best achieve this goal. Consideration of the nature of the audit evidence sought and possible deviation or misstatement conditions or other characteristics relating to that audit evidence will assist the auditor in defining what constitutes a deviation or misstatement and what population to use for sampling.

 

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