Chapter 6

Testing, Assessing, and Evaluating

Audit Evidence
 Sampling
• Audit sampling is the process of examining
less than 100% of the items within an account
balance or class of transactions for the
purpose of drawing some form of conclusion
for the entire population based on the sample
audit results.
 Sampling
• Understand the total population of items of
concern and develop a formal sampling plan
regarding the population of items;
• Draw a sample from the population based on
that sample selection plan;
• Evaluate the sampled items against audit
objectives;
• Develop conclusions for the entire population
based on audit sample results.
 Statistical Sampling
• The following reasons encourage the use of audit
sampling and statistical sampling:
– Conclusions may be drawn regarding an entire
population of data.
– Sample results are objective and defensible.
– Less sampling may be required through the use of
audit sampling.
– Statistical sampling may even provide for greater
accuracy than a 100% test.
– Audit coverage of multiple locations is often more
convenient.
– Sampling procedures can be simple to apply.
 Judgemental Sampling
• Fixed percentage selection.
• Designated attribute selection.
• Large value selection.
• Designated area selection.
• Other selected attribute selection.
 Judgemental Sampling
• Three decisions to make when using
judgemental sampling:
– Develop a method of selection, and decide what
types of items to examine.
– Determine the size of the sample
– The third decision is how to interpret and report
the audit results from the limited judgmental
sample.
 Statistical Sampling
• Population refers to the total number of items
that are subject to an audit
• Random sample is the process of selecting a
sample where each unit in that population has
an equal probability of selection.
• That random sample then represents the
characteristics of the entire population.
 Statistical Sampling
• The mean
• The median
• The mode
• The variance
• Standard deviation
• Normal distribution
 Developing a Statistical Sampling
Plan
• The population (or universe or fi eld) to be
sampled must be clearly defined
• The population should be divided or stratified
into groups if major variations exist between
population items
• Every item in a population must have an equal
chance of being selected in the sample
• There should be no bias in making the sample
selection from the population.
 Random Number Selection
• Items here should be selected at random, with
each in the population having an equal chance
to be selected as a part of the sample.
 Interval Selection
• Also called systematic sampling
• Requires the selection of individual items
based on uniform intervals from the items in
the total population. This technique is
especially useful for monetary unit sampling,
where an internal auditor would develop a
sample by selecting every n th item in the
population
 Stratified Selection
• A population is divided into two or more
subgroups or strata, with each subgroup
handled independently as a separate
population
• The justification for stratification may be that
one stratum has significantly different
characteristics, and internal audit may wish to
evaluate that subgroup on a more individual
and precise basis
 Cluster Selection
• Samples are made by systematically selecting
subgroups or clusters from the total population.
• Cluster selection is useful when items are filed in
shelves or in drawers, and it is physically more
convenient to select subgroups based on the
physical shelf area or individual file drawers.
• The rationale is that the items on particular
portions of the shelf areas or in designated
drawers are substantially similar in their nature
and that a sample thus selected will be
representative.
 Audit Sampling Approaches
• Attribute sampling
• Variables sampling
• Discovery sampling
 Attribute Sampling
• Attribute sampling is used to measure the
extent or level of occurrence of various
conditions or attributes
• Attributes sampling is not useful for
determining the estimated correct value on an
account such as an inventory book value, but
is an extremely useful tool for reviewing
control procedures in a variety of operational
areas.
 Variables Sampling
• The objective is to project total estimated
quantities for some account or adjustments to
the account on the basis of the auditor’s
statistical sample.
• Two important variables sampling approaches
are stratified sampling and monetary unit
sampling
 Efficient and Effective Use of
Audit Sampling
• If errors are found:
– Isolating errors.
– Reporting only on items examined.
– Performing 100% audits.
– Projecting results of sample.