ADVANCED AUDIT & CORPORATE GOVERNANCE

( ACCT 3320 )

GROUP ASSIGNMENT

SUMMARY OF ARTICLE :

AUDIT SAMPLING RESEARCH , A SYNTHESIS AND IMPLICATION

FOR FUTURE RESEARCH

NAME MATRIC NO.

TEH YIK HON 162017112
FHAZREENA JABARALI 153015650
OOI CHUAN YEE 163017695
JOSHUA ARPUTHASAMY 153015723

LECTURER:

MADAM NURKAMARIAH KASIM

Audit sampling is the application of an audit procedure to less than 100% of the items within an
account balance or class of transactions for the purpose of evaluating some characteristics of the
balance or class. Firstly in the research, they design a framework of the audit sampling process based
on existing auditing standards and guidance. After that, review relevant literature for each step in
the audit process. A fairly extensive literature exists on some sampling issues, such as determination
of sample size and projection of misstatements found in the sample. An extensive, but generally
dated literature also exists on various statistical sampling techniques. However, limited evidence
exists for many issues related to audit sampling.

While research has influenced auditing standards for audit sampling, academic research provides
limited insights into the current use of audit sampling. We synthesize relevant research based on a
sampling decision framework and suggest areas for additional research. Important judgments
include determining:

• Does sampling apply?

• What type of sampling to apply (e.g, attribute or monetary sampling)
• Whether to use statistical or non-statistical techniques, including appropriate inputs to
determine sample size and evaluate results
• Consideration of environmental factors such as regulation, litigation, competition, culture,
and technology.
Method
Audit sampling method involves four phases which are application, planning, performance
and evaluations. Initially, a model of of the audit sampling process been developed by taking
into account all those environment such as client complexity and utilization of technology,
legal and regulatory environment and changes in audit approaches which will influence a few
sections of the audit sampling.
The first phase begins with application where auditor decides the importance of sampling and
consider whether the tests are intended to obtain evidence of control effectiveness ,
substantive assurance or double reason, and whether the test is to be the essential source of
evidence about the assertion , or one of a several tests of the assertion . Secondly, is planning
phase where the auditor also chooses whether to perform statistical or non-statistical
sampling only after they had determine test objective define misstatements. These methods
depend on the firm methodology, nature of account , and desired level of assurance. Plus,
during the planning stage the auditor also decides on the sample size that depends of expected
and tolerable errors. Next, during the performance phase which is a critical part where audit
procedures been done on the sample items and lastly the evaluation phase where the sample
results been evaluated by determining the causes of errors and consider the sampling risk.

Relevant Findings On Methods

Based on the review and summarize of this article, there are many questions and issues being
raised regarding the methods used in the audit sampling process and those questions had been
answered and discussed with relevant findings that we gained by reading this article.

First and foremost, factors that influence auditor’s decisions to use audit sampling is when
the population is large and homogenous where sampling may help to achieve accuracy and
conclusion about the population example for search of unrecorded liabilities or inventory
where statistical or non-statistical methods may be used to evaluate the samples, however,
based on researches conducted, non-statistical methods were used in 85 percent of sampling
applications. Next, question was raised regarding the comparisons of effectiveness between
statistical and non-statistical sampling, and based on the findings in this article, it stated that
PCAOB indicates that non-statistical sampling is more comparable and the sample size
results from effectively designed statistical sample. Morever , by 1990s more large firms use
non-statistical sampling and there are few factors that cause statistical sampling to be less
preferable due to increase emphasis on inherent risk and poor linkage between applied audit
sampling and traditional sampling. Furthermore, the article also discusses on the factors in
determining sample size to ensure accuracy where for test of control( regardless of statistical
or non-statistical sampling) the sample size depends on the degree of assurance required and
the expected and tolerable deviation rate while for test of balance the sample size depends on
dollar amount of populations, tolerable misstatements and risks. Last but not least, the most
important issue that arises regarding audit sampling is during the critical part of audit
sampling which is when performing the audit procedure. So, this article questions on the
effectiveness of audit teams in detecting errors and based on few researches, it stated that
auditors fail to detect 45 percent of errors in the sample and this may touches on tasks
experience where less experience members may cause more failure in detecting errors
therefore it been suggested that more focus should be given to inexperience members since
they might not familiar with audit programs used.
Although, this article had explained and justified clearly regarding audit sampling along with
discussion of few issues but there are still many questions that need further research to justify
it such as factors that effected the type of tests performed by auditors, effectiveness of
auditors in projecting misstatement and how different locations and systems effected the way
audit sampling is planned. In conclusion, more academic researches are needed to examine
the extent to which sampling methods are effective in different situations.