Question

To what extent should auditors use sampling? What problems do auditors face when using sampling methods?

Answer 1

Audit sampling is the application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class.  This section provides guidance for planning, performing, and evaluating audit samples.

There are two general approaches to audit sampling: nonstatistical and statistical. Both approaches require that the auditor use professional judgment in planning, performing, and evaluating a sample and in relating the evidential matter produced by the sample to other evidential matter when forming a conclusion about the related account balance or class of transactions. Either approach to audit sampling can provide sufficient evidential matter when applied properly. This section applies to both nonstatistical and statistical sampling.

Problems:

Sampling risk is one of the many types of risks an auditor may face when performing the necessary procedure of audit sampling. Audit sampling exists because of the impractical and costly effects of examining all or 100% of a client's records or books. As a result, a "sample" of a client's accounts are examined. Due to the negative effects produced by sampling risk, an auditor may have to perform additional procedures which in turn can impact the overall efficiency of the audit.

Sampling risk represents the possibility that an auditor's conclusion based on a sample is different from that reached if the entire population were subject to audit procedure. The auditor may conclude that material misstatements exist, when in fact they do not; or material misstatements do not exist but in fact they do exist. Auditors can lower the sampling risk by increasing the sampling size.

Although there are many types of risks associated with the audit process, each type primarily has an effect on the overall audit engagement. The effects produced by sampling risk generally can increase audit risk, the risk that an entity's financial statements will contain a material misstatement, though given an unqualified ('clean') audit report. Sampling risk can also increase detection risk which suggests the possibility that an auditor will not find material misstatements relating to the financial statements through substantive tests and analysis.