• Audit sampling
Chapter 11 • Automated tools and
Audit Sampling techniques
and automated
tools and
techniques
Syllabus learning outcomes - Sampling
• Define audit sampling and explain the need for sampling.
• Identify and discuss the differences between statistical and
non-statistical sampling.
• Discuss and provide relevant examples of the application of the basic
principles of statistical sampling and other selective testing
procedures.
• Discuss the results of statistical sampling, including consideration of
whether additional testing is required.
Syllabus learning outcomes – CAAT
• Explain the use of computer-assisted audit techniques in the context
of an audit.
• Discuss and provide relevant examples of the use of test data and
audit software.
• Discuss why auditors rely on the work of others.
• Discuss the extent to which external auditors are able to rely on the
work of experts, including the work of internal audit.
• Explain the audit considerations relating to entities using service
organisations.
• Explain the extent to which reference to the work of others can be
made in the independent auditor's report.
Overview
ISA 530 : Audit sampling
• Audit sampling is 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.
• This will enable the auditor to obtain and evaluate audit evidence
about some characteristic of the items selected in order to provide the
auditor with a reasonable basis on which to draw conclusions
about the entire population.
• Audit sampling can use either statistical or non-statistical
approaches.
Why do auditors need to use audit sampling?
• Imagine you are the auditor responsible for audit work on year-end
receivables. This balance is the largest balance on the statement of
financial position for your client and the draft year-end figure is made
up of 355 different amounts, ranging in value from $45 to $63,250.
• You are one person in a total team of four. It just wouldn't be
practical in terms of time and cost to audit every single balance
making up the total receivables figure. After auditing receivables, you
have to do audit work on payables, accruals and non-current assets
too!
THAT'S WHY AUDITORS USE SAMPLING.
Non-sampling methods
1. Testing 100% of a population
This can be used where a population
consists of only a few items.
NON-SAMPLING
METHODS
2. Selecting Specific Items
Appropriate for
- High value or key items
- All items over a certain amount
- Item to obtain information
- Stratification
Example
Scenario 1
Auditor selects 30 samples, and they have to be more than $2,000 each.
This is NOT audit sampling, as the auditor uses a specific sample
selection method.
Scenario 2
Auditor randomly selects 30 samples to be tested, no restrictions in terms
of amount (can choose any sample).
This is audit sampling, as all items have a chance for selection
Audit sampling
TYPES OF SAMPLING
STATISTICAL
- Uses mathematical number NON-STATISTICAL
tables to choose a sample free - No mathematical basis for
from bias selecting a sample or evaluating
- Probability theory used to results
evaluate results
So if each item in the population does not have an equal chance of
being selected, the sampling technique is non-statistical.
Selection methods
1. Random (statistical) – Ensures that all items in the population have
an equal chance of selection, eg: by the use of random number tables
or random number generators.
2. Systematic (statistical) – Type of probability sampling method in
which sample members from a larger population are selected
according to a random starting point but with a fixed, periodic
interval. Involves taking every **th item of a population.
3. Value weighted selection/monetary unit sampling (statistical) – This is a
type of value weighted selection in which sample size, selection and
evaluation results in a conclusion in monetary amounts.
Selection methods
4. Haphazard (non-statistical) – Does not follow any systematic
way of selecting participants. Example : would be standing on a
busy corner during rush hour and interviewing people who pass by.
5. Block selection (non-statistical)
• May be used to check whether certain items have particular
characteristics.
• For example, an auditor may use a sample of 50 consecutive cheques
to test whether cheques are signed by authorized signatories rather
than picking 50 single cheques throughout the year.
• However, block sampling may produce samples that are not
representative of the population as a whole, particularly if errors
only occurred during a certain part of the period and hence the errors
found cannot be projected onto the rest of the population.
Question: Monetary unit sampling
You are the auditor of XYZ Co and are intending to audit receivables
by external confirmation of a sample of the year-end balances. The
trade receivables on the next slide have been randomly tabulated. At
the year-end, trade receivables amount to $1 million and materiality
is $100,000. A sample of seven trade receivable will be selected for
circularization using value weighted selection (MUS)
State which receivables balances will be selected for sampling using
valued weighted selection (monetary unit sampling).
Random Number Generator
Question: Monetary unit sampling
Customer Balance ($) Cumulative total ($) Selected (Y/N)
1 28,000 28,000
2 33,000 61,000
3 (6,000) 55,000
4 21,000 76,000
5 38,000 114,000
6 124,000 238,000
7 8,000 246,000
8 73,000 319,000
9 13,000 332,000
10 67,000 399,000
11 17,000 416,000
12 2,000 418,000
13 57,000 475,000
14 92,000 567,000
15 5,000 572,000
16 12,000 584,000
17 9,000 593,000
18 16,000 609,000
19 3,000 612,000
20 29,000 641,000
21 12,000 653,000
22 47,000 700,000
23 700,000
Question: 2014 Specimen Exam (Sec A, Q1)
Which of the following sampling methods correctly describes
systematic sampling?
A. A sampling method which is a type of value-weighted selection
in which sample size, selection and evaluation results in a
conclusion in monetary amounts – this is monetary unit
sampling
B. A sampling method which involves having a constant
sampling interval, the starting point for testing is determined
randomly
C. A sampling method in which the auditor selects a block(s) of
contiguous items from within the population – this is block
selection
Question: June 2014 exam (Sec B, Q2)
ISA 530 Audit Sampling applies when the auditor has decided to use
sampling to obtain sufficient and appropriate audit evidence.
Required
Define what is meant by 'audit sampling' and explain the need for
this. (3 marks)
Answer: June 2014 exam (Sec B, Q2)
Audit sampling is 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
As auditors do not provide 100% assurance in their audit report about
the FS, they only provide reasonable assurance and hence it is not
necessary to test every item within a population
Audit sampling can be applied using either a statistical or a non
statistical approach, It is necessary for auditors to use either sampling
method as its impossible to select all items for testing as this would
take the audit team too long and it would cost too much
Exam link: Audit sampling
• Students historically find audit sampling a tricky part of the AA
syllabus and it is an area where your knowledge could easily be
tested by the examining team.
• This article from the August 2011 edition of Student Accountant
will prove very useful:
http://www.accaglobal.com/content/dam/acca/global/PDF-student
s/2012s/SA_Aug11_auditsampling_F8v2.pdf
Sampling Risk
• Sampling risk is the risk that the auditor’s conclusion,
based on sample may be different from the conclusion if
the entire population were subjected to the same audit
procedure. (ISA 530)
• Auditor must determine a sample size that will reduce
sampling risk to an acceptable low level
• If auditor judges sampling risk is high, then they will
need to select a larger sample
• Other factors that effect sample size include
i) ROMM
ii) Required confidence level
iii) Expected Error
iv) Tolerable Error/misstatement
Evaluation of sample results
Once the audit procedures have been carried out on the sample, the auditor
should evaluate the sample results whether they are satisfactory or whether
further work is required
Where there are errors in the sample, auditor should consider:
• Nature and cause of error
• Whether the error is ”one-off” (anomalous) error or recurrent issue
• Whether the error effects the purpose of audit procedure
• Whether the error affects other areas of the audit
If the evaluation of samples of results indicates significant issues, auditor may:
• Request management to investigate identified error and make necessary
adjustment
• Modify the nature, timing and extent of further audit procedures
• Consider the effect on the auditors report
No significant issue
• No adjustment necessary- but error should be noted in Scheduled of
Uncorrected Mistatement
Test of details
Where sampling has been used to perform test of
details, the auditor should project the monetary
errors found in the sample to the population as a
whole and compare this to the level of tolerable
misstatement
Ex: Text Book page 269
Test of Control
Ex: Page 269
Computer-assisted audit techniques
• Computer-assisted audit techniques (CAATs) involve using a
computer to perform audit work.
• Computers can be used to perform either substantive tests (tests of
details or substantive analytical procedures) or tests of controls.
• Two main types of CAATs:
– Audit software
– Test data
Audit software
• Consists of computer programs used by the auditor, as part of his
auditing procedures, to process data of audit significance from the
entity's accounting system.
• What happens is that the auditor will transfer the client’s accounting
data into their laptops for further processing (such as ledgers,
journals, NCA registers, reconciliations, database, etc).
• Audit software is most useful in performing substantive procedures.
• Can be used to:
– Read and extract data from a client's system
– Select information (eg a sample)
– Perform calculations (eg casting)
– Print reports in specified formats
Audit software
• Other functions of audit software:
– Assist in performing comparison between current year figures
with last year figure and highlight unusual differences.
– Perform trend analysis and highlight unusual trends in FS that
needs investigations.
– It can calculate ratios, perform the comparison and highlight
unusual variances.
– It can perform recalculation for the purpose of accuracy check.
– It can select samples from ledgers for further testing.
– It can prepare confirmation letters and even ageing reports and
highlight and outstanding balances.
Test data
• Test data is performed by the auditor to test the strength of client’s
internal control system. However, before an auditor can perform test
data, they would need to understand how the client’s ICS.
• Test data techniques are audit procedures which enter data into an
entity's computer system, and compare the results obtained with
pre-determined results.
• Test data is a fictitious/invalid set of test transactions which are
input/entered to the client's system in order to determine whether
the internal controls within the entity's computer systems have
operated effectively throughout the period.
• This will require significant co‑operation from the client, especially in
terms of computer access time.
Test data : Examples
• Attempt to enter an invalid password to the inventory system to test
whether the system would give access or deny entry.
• Attempt to process a customer who is not included in the approved
list to determine whether the system would reject of process the order
accordingly.
• Attempt to enter an order above customer’s credit limit to ensure the
system rejects it instead of processing the order.
• Attempt to amend data in the payroll system using a username and
password from someone outside the payroll department to determine
if the system would allow or disallow the transaction.
Advantages of CAATs
• Auditors can test a greater number of items more quickly and
accurately than would be the case otherwise.
• Auditors can test transactions rather than paper records of
transactions that could be incorrect.
• CAATs are cost-effective in the long-term if the client does not
change its systems.
• Results from CAATs can be compared with results from
traditional testing – if the results are the same,
overall confidence is increased.
• CAATs reduce the level of human error in testing and hence
provide a better quality of audit evidence.
Disadvantages of CAATs
• Setting up the software needed for CAATs can be time consuming
and expensive.
• Audit staff will need to be trained so they have a sufficient level of I
T knowledge to apply CAATs.
• Not all client systems will be compatible with the software used wit
h CAATs.
Question: September 2016
To help improve audit efficiency, Viola & Co is considering
introducing the use of computer assisted audit techniques (CAATS)
for some audits. You have been asked to consider how CAATs could
be used during the audit of Poppy Co. Which of the following is an
example of using test data for trade payables testing?
A. Selecting a sample of supplier balances for testing, using
monetary unit sampling
B. Recalculating the ageing of trade payables to identify balances
which may be in dispute
C. Calculation of trade payables days to use in analytical
procedures
D. Inputting dummy purchase invoices into the client system to see
if they are processed correctly
Answer: September 2016
D.
Remember when it comes to test data, usually it is used to test
client’s Internal Control System
The easiest way to remember, the answer would usually be as if
the auditor is inputting a false/fake data into client’s system.
This is done to test whether the system would process or reject
the data. Rightfully, the system should reject
The other option (A, B,C ) are examples of task which may be
perform by audit software
Exam link: CAATs
• CAATs are a common area of confusion for students.
• Specific questions on this area could be both knowledge-based
and applied, and could come up in either Section A or Section B.
• Remember, you can also suggest CAATs when asked for tests of
controls or substantive procedures, but simply stating 'Perform
CAATs' wont get you many marks!
• This article from the January 2011 edition of Student Accountant
may prove useful:
http://www.accaglobal.com/content/dam/acca/global/PDF-student
s/2012s/sa_jan11_CAATs.pdf
• This article from August 2009 is also worth reading:
http://www.accaglobal.com/content/dam/acca/global/PDF-student
s/2012s/sa_aug09_byrne.pdf
