• 15 Marks

AA – May 2018 – L2 – Q7 – Audit Sampling and Other Selective Testing Procedures

Discusses key factors in designing audit samples and compares statistical versus non-statistical sampling approaches.

Auditors do not normally check 100% of transactions and balances that go into the production of financial statements. Auditors usually carry out a sampling test. ISA 530 distinguishes between statistical and non-statistical sampling approaches.

Required: a. Explain THREE key factors the auditor has to take into consideration in designing a sample. (6 Marks) b. Distinguish between statistical and non-statistical sampling approaches. (4 Marks) c. State TWO advantages and TWO disadvantages of statistical sampling approach. (5 Marks)

  • Key Factors in Designing a Sample:
    • Purpose of the Procedure: The auditor must ensure that the sample design aligns with the overall audit objectives and the purpose of the audit procedure.
    • Population to be Sampled: The auditor should identify the appropriate population to sample from to ensure it represents the full data set for which conclusions are to be drawn.
    • Sample Size: The auditor must determine an appropriate sample size that will reduce sampling risk to an acceptably low level and provide sufficient coverage of the population.
  • Statistical vs. Non-Statistical Sampling:
    • Statistical Sampling: This method involves random selection and the use of probability theory to evaluate the sample results and measure sampling risk. It provides a more objective basis for decision-making.
    • Non-Statistical Sampling: This approach relies on the auditor’s judgment in selecting sample items and evaluating results without using probability theory. It is often quicker but more subjective.
  • Advantages of Statistical Sampling:
    • Objectivity: Statistical sampling provides a mathematically precise and objective basis for sampling decisions.
    • Efficiency: It allows auditors to make valid conclusions about large populations with relatively small samples, which is more efficient in large audits.
  • Disadvantages of Statistical Sampling:
    • Training and Expertise: It requires auditors to have specialized knowledge and skills, which may result in higher costs for training and implementation.
    • Complexity: The method can be complex and time-consuming, especially for auditors who are not familiar with statistical techniques.
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