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AU 350 SAS 111. Audit Sampling C Delano Gray June 14, 2008. Generally accepted auditing standards. General Standards. 1. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. 2. The auditor must maintain independence

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au 350 sas 111
AU 350 SAS 111
  • Audit Sampling
  • C Delano Gray
  • June 14, 2008
general standards
General Standards

1. The audit is to be performed by a person or

persons having adequate technical training

and proficiency as an auditor.

2. The auditor must maintain independence

in mental attitude in all matters relating

to the audit.

general standards1
General Standards

3. The auditor must exercise due professional

care in the performance of the audit and the

preparation of the report.

standards of field work
Standards of Field Work

1. The auditor must adequately plan the work

and must properly supervise any assistants.

2. The auditor must obtain a sufficient

Understanding of the entity and its environment,

including its internal control, to assess the

risk of material misstatement and to design

further audit procedures.

standards of field work1
Standards of Field Work

3. The auditor must obtain sufficient appropriate

audit evidence by performing audit procedures

to afford a reasonable basis for an opinion

regarding the financial statements under audit.

standards of reporting
Standards of Reporting

1. The report shall state whether the financial

statements are presented in accordance with

generally accepted accounting principles.

2. The report shall identify those circumstances

in which such principles have not been

consistently observed in the current period

in relation to the preceding period.

standards of reporting1
Standards of Reporting

3. Informative disclosures in the financial

statements are to be regarded as reasonably

adequate unless otherwise stated in the report.

4. The report shall contain an expression of

opinion regarding the financial statements,

taken as a whole.

generally accepted auditing standards
Generally Accepted AuditingStandards

General Standards

1. Adequate training and proficiency

2. Independence in mental attitude

3. Due professional care

generally accepted auditing standards1
Generally Accepted AuditingStandards

Standards of Field Work

1. Proper planning and supervision

2. Understanding of the entity

3. Sufficient appropriate evidence

generally accepted auditing standards2
Generally Accepted AuditingStandards

Standards of Reporting

1. Statements prepared in accordance with GAAP

2. Circumstances when GAAP not followed

3. Adequacy of disclosures

4. Expression of opinion on financial statements

aicpa sas 111
  • .01 Audit sampling is the application of an audit procedure to less
  • than 100 percent of the items within an account balance or class
  • of transactions for the purpose of evaluating some characteristic
  • of the balance or class.
  • This section provides guidance for planning, performing,
  • and evaluating audit samples.
  • Source AICPA
.02 The auditor often is aware of account balances and
  • transactions that may be more likely to contain misstatements.
  • He considers this knowledge in planning his procedures,
  • including audit sampling.
.03 There are two general approaches to audit sampling: non-statistical

and statistical. Both approaches require that the auditor use professional

Judgment in planning, performing, and evaluating a sample and in relating the

audit evidence produced by the sample to other audit evidence when forming

a conclusion about the related account balance or class of transactions. The

guidance in this section applies equally to non-statistical and statistical sampling.

.04 The third standard of field work states, "The auditor must obtain sufficient
  • appropriate audit evidence by performing audit procedures to afford a
  • reasonable basis for an opinion regarding the financial statements under audit."
  • Either approach to audit sampling, when properly applied, can provide
  • sufficient audit evidence.
representative samples
Representative Samples

A representative sample is one in which

the characteristics in the sample of audit

interest are approximately the same as

those of the population.

Nonsampling risk is the risk that audit

tests do not uncover existing exceptions

in the sample.

representative samples1
Representative Samples

Sampling risk is the risk that an auditor

reaches an incorrect conclusion

because the sample is not

representative of the population.

Sampling risk is an inherent part of

sampling that results from testing

less than the entire population.

Distinguish between statistical
  • and nonstatistical sampling and
  • between probabilistic and non-
  • probabilistic sample selection.
statistical versus nonstatistical sampling
Statistical Versus Nonstatistical Sampling


Step 1: Plan the sample

Step 2: Select the sample and perform the tests

Step 3: Evaluate the results

statistical versus nonstatistical sampling1
Statistical Versus Nonstatistical Sampling


Statistical sampling allows the quantification

of sampling risk in planning the sample (Step 1)

and evaluating the results (Step 3)

In nonstatistical sampling those items that

the auditor believes will provide the most

useful information are selected

probabilistic versus nonprobabilistic sample selection
Probabilistic Versus Nonprobabilistic Sample Selection

Probabilistic sample selection is a method

of selecting a sample such that each

population item has a known probability

of being included in the sample.

Nonprobabilistic sample selection is a

method in which the auditor uses professional

judgment rather than probabilistic methods.

probabilistic versus nonprobabilistic sample selection1
Probabilistic Versus Nonprobabilistic Sample Selection


1. Directed sample selection

2. Block sample selection

3. Haphazard sample selection

probabilistic versus nonprobabilistic sample selection2
Probabilistic Versus Nonprobabilistic Sample Selection


1. Simple random sample selection

2. Systematic sample selection

3. Probability proportional to size sample selection

4. Stratified sample selection

nonprobabilistic sample selection methods
Nonprobabilistic SampleSelection Methods

Directed sample selectionis the selection of

each item based on auditor judgmental criteria.

  • Items most likely to contain misstatements
  • Items containing selected population characteristics
  • Large dollar coverage
nonprobabilistic sample selection methods1
Nonprobabilistic SampleSelection Methods

Block sample selection is the selection

of several items in sequence.

Haphazard sample selection is the selection

of items without any conscious bias on the

part of the auditor.

probabilistic sample selection methods
Probabilistic Sample Selection Methods

A simplerandom sampleis one in which

every possible combination of elements

in the population has an equal chance

of constituting the sample.

  • Random number tables
  • Computer generation of random numbers
probabilistic sample selection methods1
Probabilistic Sample Selection Methods

Systematic sample selection:

The auditor calculates an interval and

then selects the items for the sample

based on the size of the interval.

The interval is determined by dividing

the population size by the number of

sample items desired.

probabilistic sample selection methods2
Probabilistic Sample Selection Methods

Probability proportional to size:

A sample is taken where the probability

of selecting any individual population item

is proportional to its recorded amount (PPS).

probabilistic sample selection methods3
Probabilistic Sample Selection Methods

Stratified sample selection:

The population is divided into subpopulations

by size and larger samples are taken of the

larger subpopulations.

sampling for exception rates
Sampling for Exception Rates

The occurrence rate, or exception rate,

is the ratio of the items containing the

specific attribute to the total number

of population items.

sampling for exception rates1
Sampling for Exception Rates

Following are types of exceptions in

populations of accounting data:

1. Deviations from client’s established controls

2. Monetary misstatements in populations

of transaction data

3. Monetary misstatements in populations of

account balance details

i plan the sample
I: Plan the Sample

Step 1: State the objectives of the audit test.

Step 2: Decide whether audit sampling applies.

Step 3: Define attributes and exception conditions.

Step 4: Define the population.

Step 5: Define the sampling unit.

i plan the sample1
I: Plan the Sample

Step 6: Specify the tolerable exception rate.

Step 7: Specify acceptable risk of assessing

control risk too low.

Step 8: Estimate the population exception rate.

Step 9: Determine the initial sample size.

ii select the sample and perform the audit procedures
II: Select the Sample and Perform the Audit Procedures

Step 10: Select the sample.

Step 11: Perform the audit procedures.

iii evaluate the results
III: Evaluate the Results

Step 12: Generalize from the sample to the


Step 13: Analyze exceptions.

Step 14: Decide the acceptability of the population.

effect on sample size of changing factors
Effect on Sample Size of Changing Factors

Effect on initial

Type of change sample size

Increase acceptable risk of

assessing control risk too low Decrease

Increase tolerable risk rate Decrease

Increase estimated population

exception rate Increase

Increase population size Increase (minor)


When planning a particular audit sample for a test of controls, the auditor should consider:

• The relationship of the sample to the objective of the test of controls.

• The maximum rate of deviations from prescribed controls that would support his planned assessed level of control risk.

• The auditor's allowable risk of assessing control risk too low.

• Characteristics of the population, that is, the items comprising the account balance or class of transactions of interest.

probability proportion to size
Probability Proportion to Size
  • Probability proportional to size (PPS) is a sampling technique
  • for use with surveys or mini-surveys in which the probability
  • of selecting a sampling unit is proportional to the size of its
  • population. It gives a probability (i.e., random, representative)
  • sample.

It is most useful when the sampling units vary considerably

in size because it assures that those in larger dollar value

Transaction have the same probability of getting into the sample

as the smaller ones, and vice verse.

Define and describe attributes
  • sampling and a sampling
  • distribution.
statistical audit sampling
Statistical Audit Sampling

The statistical sampling method most

commonly used for tests of controls

and substantive tests of transactions

is attributes sampling.

sampling distribution
Sampling Distribution

It is a frequency distribution of the results

of all possible samples of a specified size

that could be obtained from a population

containing some specific parameters.

Attributes sampling is based on the

binomial distribution.

Use of attributes sampling in tests
  • of controls and substantive
  • tests of transactions.
application of attributes sampling
Application of Attributes Sampling

Effect of population size:

  • Population size is a minor consideration

in determining sample size

  • Representativeness is ensured by the sample
  • selection process more than by sample size
application of attributes sampling1
Application of Attributes Sampling
  • Select the sample
  • Perform the audit procedures
  • Evaluate the results