Guidance on Sampling

Considering the guidance on sampling, the sampling used by us depends on the assertions being tested, the nature of the population and our assessment of the risk material misstatement. Examples that involve sampling include samples of:

• weekly sales report and review management's response to potential problems in the process
• purchase requisitions and verify proper authorizations
• locations and observe inventory count procedures executed by client personnel
• shift changes within the factory and observe employees clocking in and out
• sales invoices and test the accuracy of individual transactions by verifying quantities and prices against appropriate supporting documentation
• accounts receivable to be confirmed with customers

Although the increased use of  different tests enables us to examine all items in a population and reduces the need for sample based tests, there are many process controls that cannot be tested through tests such as ACL which can consist of the manager actually reviewing the report, a discrepancy, and that the sales system is under control.

As auditors we must address the the size of the population to use when gathering evidence from a larger population because we can't test every single item that we come across. The sample size will depend on two main factors: the assertions being tested and the assessment of risk. Once the sample size is determined, we choose the items or transactions to examine from the population. Common attributes that we would consider when selecting a sample include (similar to what we did in ACL):

• the magnitude of the transaction
• date of a transaction
• parties to the transaction
• nature of underlying assets and liabilities.

References:

• Auditing Assurance & Risk by Knechel, Salterio and Ballou