Auditing and Assurance Chapter 7: Audit Sampling
CA Inter Auditing and Assurance Chapter 7, Audit Sampling, Important Solved Questions for May 2021 & November 2021 Exams.
With reference to Standard on Auditing 530, state the requirements relating to audit sampling, sample design, sample size and selection of items for testing.
Audit Sampling: As per SA 530 on “Audit Sampling”, the meaning of the term 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 in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
The requirements relating to sample design, sample size and selection of items for testing are explained below-
Sample design – When designing an audit sample, the auditor shall consider the purpose of the audit procedure and the characteristics of the population from which the sample will be drawn.
Sample Size – The auditor shall determine a sample size suﬃcient to reduce sampling risk to an acceptably low level.
Selection of Items for Testing – The auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection.
While planning the audit of S Ltd. you want to apply sampling techniques. What are the risk factors you should keep in mind?
Risk Factors while applying Sampling Techniques: As per SA 530 “Audit Sampling”, sampling risk is the risk that the auditor’s conclusion based on a sample may be diﬀerent from the conclusion if the entire population were subjected to the same audit procedure. Sampling risk can lead to two types of erroneous conclusions-
(i) In the case of a test of controls, that controls are more eﬀective than they actually are, or in the case of tests of details, that a material misstatement does not exists when in fact it does. The auditor is primarily concerned with this type of erroneous conclusion because it aﬀects audit eﬀectiveness and is more likely to lead to an inappropriate audit opinion.
(ii) In the case of test of controls, the controls are less eﬀective than they actually are, or in the case of tests of details, that a material misstatements exists when in fact it does not. This type of erroneous conclusion aﬀects audit eﬃciency as it would usually lead to additional work to establish that initial conclusions were incorrect.
What precautions should be taken by the auditor while applying test check techniques?
Precautions to be taken while applying test check techniques are
- Thorough study of accounting system should be done before adopting sampling
- Proper study of internal control systems.
- Areas which are not suitable for sampling should be carefully considered. Eg: compliance with statutory provisions, transactions of unusual nature etc.
- Proper planning for Sampling methods to be used and explaining the staff,
- Transactions and balances have to be properly classified (stratified)
- Sample size should be appropriately determined.
- Sample should be chosen in unbiased way,
- Errors located in the sample should be analysed properly.
Explain the factors to be considered while determining the extent of checking on a sampling plan.
The factors that should be considered for deciding upon the extent of checking on a sampling plan are following:
(i) Size of the organisation under audit.
(ii) State of the internal control.
(iii) Adequacy and reliability of books and records.
(iv) Tolerable error range.
(v) Degree of the desired conﬁdence.