Mastering Audit Sampling (Currently Unavailable)

Author: Salvatore Collemi

When performing an audit of a private company, a CPA firm / sole practitioner bases his/her opinion about whether the financial statements are free from material misstatement based on a variety of testing procedures performed on material account balances (or classes of transactions). Some of these balances may be tested 100% but, more often than not, such as is the case with revenue, the engagement team will likely use audit sampling to obtain sufficient appropriate evidence. Engagement teams will also use audit sampling when testing controls to conclude on the effectiveness of those controls.

Audit sampling involves the application of audit procedures to less than 100% of items within a class of transaction or account balance such that all sampling units have an equal chance of being selected.

Audit sampling is mainly used for sampling substantive audit procedures. Audit sampling introduces the concept of sampling risk which arises from the possibility that an auditor’s conclusions might be different from those that would have been reached if the test were applied in the same way to 100% of the items in the account balance or class of transactions. Sampling risk includes the risk of assessing control risk too low or too high and the risk of incorrect acceptance and the risk of incorrect rejection.

Before sampling, engagement teams may want to consider if sufficient appropriate audit evidence has been gained through other substantive procedures such as substantive analytical procedures, dual purpose tests performed when testing the effectiveness of internal controls (e.g., performing substantive procedures on the items selected for testing the effectiveness of internal controls), or other substantive procedures performed such as testing of significant or unusual items.

We will explore these issues and so much more!

Publication Date: July 2021

Designed For
Auditors and practitioners in public practice who conduct audits of privately-held organizations.

Topics Covered

• Overview
• Do we always need to sample?
• Alternatives to sampling?
• Sampling for tests of details
• What should we consider prior to performing sampling?
• Appropriately sample for tests of details
• Testing of Revenue Transactions
• Resources

Learning Objectives

• Recognize how to apply the Professional Standards related to sampling applications
• Identify how to focus on using audit sampling for substantive testing and dual purpose testing
• Identify a question that should be asked before considering the use of sampling
• Identify the risk that a misstatement that could occur in an assertion about a class of transaction, account balance, or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity's internal control
• Identify the first step in a sample for tests of details
• Recognize which sample selection methods gives every item in the population an equal chance of being selected if a random start is used
• Identify what is not a common document found in audit workpapers for substantive audit samples based on the AICPA Sampling Guide

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Auditing (2 hours)

Program Prerequisites
General knowledge of audit sampling under the AICPA Professional Standards.

Advance Preparation
None