Question

1. List the steps involved in attribute sampling. 2. What is meant by "sampling risks" and what is its impact on audit findings? 3. Identify and define the factors that affect the size of an attribute sample. 4. Explain how the purpose of statistical sampling in tests of monetary values differ from the purpose of statistical sampling in tests of control activities.

B. Discuss a situation within Payroll or Accounts Payable where data analytics could be used by an Internal Auditor. Briefly describe the information to be analyzed and what potential results would be expected? (i.e. How would the population of data be defined? What controls is being tested? What additional testing beyond data analytics, if any, would be required to reach an audit conclusion?).

Answer 1

Attribute of Sampling , Audit Sampling , Sampling Risk :

Sampling in genera meaning Gathering of data/ information and select of the items within an account balance or class of transactions . Auditor normally choose different types of sampling while performing an Audit . While Auditing , Auditor selects a certain number of records to estimate how many times a certain features will show up in the Population ( this is called Audit Attributable )

Auditor used Attributable sampling to test Internal control .

Sampling Risk – Mainly ISA 530 recognised the Sample Risk . Sample Risk can lead mainly following matters:

1. With help of sample data, Auditor used to established Internal control system of any organization . As w are aware that while doing Audit , Auditor considered some tolerable error , Expected error , sampling risk ( % wise ) + confidence level . With help of Sample of data , Auditor wants to established any major material misstatement exist or not ,
2. Auditor used to do Substantive and compliance testing .
3. Selection of Sample is always challenge for Auditor . If the sample technique or procedure is incorrectly choose or use , then the result of Audit sampling is not actually represent the total population and Auditor might have to come to conclusion that this is not correct.

Statistical Sampling and Impact on Control –Basic meaning of sampling is test less than 100% of the item population and on the same basis , established conclusion Auditor used to do “ test Check “ , : Substantive test ,Compliance Test to do more risk analysis ,

Statistical Sampling method follow Probability Law and provide a measurable degree of sample risk . Under statistical Sampling method :

1. The population ( gathering of information) is a homogeneous Group
2. There is no bias in the selection process

With help of above systematic , Probability based Audit Sample technique help us to do proper control test . Established control test in a effective manner and try to identify / detect any major material misstatement.   

Payroll System – Audit Technique, Control test

Auditor use Sample Risk , Audit Technique to identify Internal Control system . Most important object for Auditor is to do in depth Internal Control system and established that Audit report is free from Material Misstatement .

In order to evaluate the control system relates to Payroll process , Auditor needs to look into following matter :

1. Employee head count in the organization
2. Ensure all payment process must be routed through Authorised process and person responsible for this process
3. To ensure that pay check calculated correctly
4. To ensure that Payroll transaction recorded correctly in books of accounts
5. To ensure that all payroll deduction as per Statutory law

Auditor established audit Questionnaire as well as Internal Control Evaluation Questionnaire to ensure that :

1. Can Employee paid for work done ?
2. All transaction has been Authroised or not ?
3. Payroll deduction as per Statutory laws or Not ?

To established proper Internal Control system , We need to established Master data relates to payroll and this data normally maintain by HR department of any company . Auditor needs to review or check control of master Payroll data ( like employee addition,

In Payroll Audit , Auditor needs to assess risk of fraud Like Salary paid to any Ghost employee , release of pay check deliberately with high amount , intentionally miscalculate salary amount , Excess payment towards Overtime ,

Audit now a days use CAAT ( computer assisted Audit Technique) and check :

Input of employee number , input salary cost, Overtime calculation etc.