Audit sampling is the application of audit procedures to selected items with exemption of a few entries in the financial statements, specific account or in a transaction class. The rationale behind the sampling is to assess and determine some, if not all, characteristics of the listed items in the statements of finance. Audit sampling is based on the principle that an auditor is conscious of transactions and account balances that may be full of wrong entries. It is by this knowledge that the auditor is expected appropriately to choose the accounts or transactions to sample when carrying out his audit work the accounts or transactions to sample when carrying out his audit work.
Audit sampling has two approaches - statistical and non- statistical. Statistical sampling is where the audit samples that are picked for audit are chosen scientifically and an auditor can give a good reason for picking the selected items for audit. This method can be carried out through random sampling, where an auditor selects a sample from a population and does not replace it. Systematic sampling is also classified as statistical. This is where the sample is selected after the group is broken down into status or cluster. Each cluster then produces a sample and is used in the audit. This audit sampling process is also known as stratified. Non statistical sampling is the audit approach where the auditor employs his experience on auditing accounts and picks an appropriate account for auditing. This sampling method is known as judgmental and an auditor cannot mathematically justify why he picked a particular account.
Non statistical sampling can be carried out through haphazard selection. This is where the auditor picks the samples without deliberate intent to exclude or include particular items of the population. Block selection is also another method that can be used in no statistical sampling. This is where the auditor chooses a block of transactions that occurred in a particular time and analyses them to represent the whole population. The main difference between statistical and non statistical audit sampling lies in the determination of the sampling risk or error. Where an auditor applies the statistical method of sampling, the sampling error can be calculated with ease. Where the auditor applied the judgmental sampling process in the selection of an audit sample, the sample risk cannot be controlled or measured any time.
The two have the similarity that it is wholly in the discretion of the auditor to decide which sample to use when carrying out his audit work. The application of either method does not abolish the right of judgment exercise of the auditor. Audit sampling is of great importance to the audit process. The basic benefit is to grant a logical basis on which the auditor will draw conclusions concerning the population that he selected the sample. Audit sampling is also useful as it saves time and money. An auditor would carry out all control tests on all accounts if there were enough time to do it and if he were properly remunerated for it.
However, due to the deficiency of both items, the auditor is coerced to apply the technique of audit sampling, upon which he will base his audit report. Through sampling, auditors are able to cover more accounts. This is because; they use a small sample of each to determine the situation of the whole account. This way, the move, faster and complete their activities on time. Audit sampling also permits the auditor to focus more on the areas and transactions that are of high value or more risky. These are the areas where the auditor concentrates more on and draws inferences. As of the other areas that are less risky, the auditor picks fewer samples and completes the audit in time.
Nevertheless, there are various risks that arise as a result of sampling. These errors are either sampling or non sampling risks. Sampling risks arise as a result of not applying the audit procedures on all items of a population. This is the risk that a sample picked for audit does not represent a true picture of the whole population. This is the risk that the inference that the auditor draws from only auditing a sample is not the same with what he would have drawn if he audited the whole population. Non sampling risks are the risks that are related to human error. These are the risks that the audit procedure used by the auditor is inappropriate. It could also be the error that the information that an auditor depends on in the audit is wrong.
It is crucial to note that non sampling risks are unavoidable risks. They exist irrespective of the samples tested in a population. Sampling risks are dangerous and should be avoided at all costs as can direct the auditor into an erroneous conclusion. The decision on whether sampling is effective in the detection of financial or account misstatements depends largely on both the audit sample and the sampling risk level. An audit sample is a small chosen transaction from a population of similar transactions to be a representation of the whole population. In auditing, an audit sample is a control that indicates the state of the other transactions. An auditor uses this sample to make conclusions on all the other elements in the population.
An audit sample will be deemed to be acceptable and used by an auditor if it has a large population and if it is relevant to the dates that the audit report will be based on. There are several ways of selecting an audit sample. Auditors are permitted to use computerized random number generators in the selection of the sample. Systematic sample selection is also a way to choose a sample. The risk that the opinion drawn by the auditor would have been different if the whole population were considered for audit is known as the sampling risk. An auditor can reduce the sampling risk by increasing the size of the sample.
Non sampling risks are audit risks too associated to audit samples. The risk that the auditor will still arrive at an erroneous conclusion despite choosing a suitable audit sample is known as a non sampling risk. Non sampling risks occur mostly in audits as auditors mostly rely on persuasive evidence rather than conclusive evidence. An auditor can reduce non sampling risks when carrying out an audit. This is mostly through proper and thorough planning of the audit and supervising his audit team when carrying out an audit. Proper review of audit techniques can also be used to minimize the level of non sampling risks.
There are particular areas that cause a major challenge when the use of samples depends on when carrying out an audit. An example of such an area is in the audit of human resource function and staff. This is because, even when some team members sign to have been present on particular days, they may have been absent and they just signed for protocol. If an auditor chooses to sample the attendance and relies on such data, he may end up making a wrong conclusion. This is because the evidence he is relying on is not correct. Therefore, to generate a true and fair view in the audit of staff and human resources, sampling may not be the best audit technique to use.
The main disadvantage of sampling is the fact that one may not get to find out any incriminating information. The sample chosen may not expose all the errors that may be in the statements. In the event that an auditor fails to expose some errors he uncovered during the auditing process, he risks himself as well as the business. The auditor incurs an engagement risk which makes him prone to cancellation of his practicing certificate. To the business, the engagement risk is a threat as it continuity and profitability. Auditors should expose all errors unearthed in an audit.
Works Cited
AU Section 350. Audit Sampling. 4 April 2014. 4 April 2014. <http://www4.ncsu.edu>.
Gary, White & Phillip Herman. "Principles Of Auditing." Statistical and Non Statistical Sampling (2014): 1-5. <http://www4.ncsu.edu/unity/users/b/buckless/www/AUSection350.html>.
