AUDIT SAMPLING

Summary of Modern Auditing Chapter 13

By:

BONY FERYANTO MARYONO (A311 10 279)

Accounting Department Faculty of Economics and Business Hasanuddin University 2012

SAMPLING RISK AND NONSAMPLING RISK Sampling Risk Sampling risk relates to the possibility that a properly drawn sample may not be representative of the population. Thus, the auditors conclus ion about internal controls or the details of transactions and balances based on the sample may be different from the conclusion that would result from the examination of the entire population.

Nonsampling Risk Nonsampling risk refers to the portion of audit risk that is not due to examining only a portion of the data. Sources nonsampling risk include (1) human mistakes, such as failing to recognize errors in documents, (2) applying auditing procedures inappropriate to the audit objective, (3) misinterpreting the results of a sample, and (4) relying on erroneous information received from another party, such as an erroneous confirmation response. Nonsampling risk can never be mathematically measured. However, proper planning and supervision and adherence to the quality control.

TESTS OF CONTROLS THAT DO NOT INVOLVE AUDIT SAMPLING Auditors must recognize when the logic behind audit sampling may not apply to tests of controls. The concepts associated with the audit sampling do not apply to: Tests that rely primarily on inquiry and observation (example: many tests of the control environment, tests of segregation of duties, or observation of physical controls). Tests of computer application controls because they can test a programmed decision point with only two elements of tests data (on tests to determine that control appropriately accepts transactions that meet the control criteria and one to see that it appropriately rejects transactions that fail to meet control criteria).

 Tests of computer application controls that may show exeptions on a computer screen and prevent further processing of a transaction (tested with inquiry and observation, and by submitting transactions that may generate expected error messages).

FRAMEWORK FOR AUDIT SAMPLING FOR TESTS OF CONTROLS Below listed the steps: Determine the objectives of the test of controls Determine procedures to evaluate internal controls Make a decision about the audit sampling technique Define the population and sampling unit Use professional judgment to determine sample size Select a representative sample Apply audit procedures Evaluate the sample results Document conclusions

SUBSTANTIVE TESTS THAT DO NOT INVOLVE AUDIT SAMPLING As with tests of controls, the auditor must recognize when the concepts associated with audit sampling apply, or do not apply, to substantive tests. In a few instances, the logic behind audit sampling does not apply to substantive tests. For example, audit sampling does not apply to initial procedures, substantive analytical procedures, and many tests of details of accounting estimates and tests of detais of disclosures. An auditor might audit the allowance for doubtful accounts by usinggeneralized audit software to identify every customer that has had a history of having receivables more than 30 or 60 days past due. In so doing, the auditor s trying to investigate the entire population of slow paying customers.

FRAMEWORK FOR AUDIT SAMPLING FOR SUBSTANTIVE TESTS Below listed the steps: Determine the objectives of the substantive test Determine the substantive audit procedures to perform Make a decisions about the audit sampling technique Define the population and sampling unit Use professional judgment and statistical methods to determine sample size Select a representative sample Apply audit procedures Evaluate the sample results Document conclusion