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.
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: November 2023
Designed For
Auditors and practitioners in public practice who conduct audits of privately-held organizations.
Topics Covered
- Types of sampling approaches and sampling risk
- Testing for tests of controls and compliance
- Differentiating statistical and nonstatistical sampling approaches
- Using audit sampling engagement team's last line of defense
Learning Objectives
- Identify the Professional Standards related to sampling applications
- Describe how to use audit sampling for substantive testing and dual purpose testing
- Identify the sample selection method that provides each item in the population an equal chance to be selected
- Identify the referenced organization that issued an audit sampling guide entitled Audit Sampling
- Identify at how many levels inherent risk and control risk should be assessed by an audit team
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
Instructor
Salvatore Collemi
Salvatore A. Collemi, CPA is the Managing Member and Founder of Collemi Consulting and Advisory Services, LLC where he relies on over three decades of global business experience to guide U.S. and International public accounting firms, litigation attorneys, valuation experts, the C-suite and related institutions that support the profession in order to promote and enhance audit quality.
His practice provides outsourced high-level strategic and technical accounting & auditing guidance. Services include a full range of U.S. and International accounting & auditing consultations, technical reviews of financial statements and workpapers, AICPA Peer Review & PCAOB Inspection preparation, perform internal inspections, customized CPE training, independence & ethics consultations, etc. Salvatore is also a keynote speaker at company retreats and conferences. His past work experience at the U.S. Securities and Exchange Commission and the AICPA, combined with his previous roles as external auditor and technical partner to both national and international public accounting firms, gives him a keen understanding into the mindset of both regulators and standard-setters that he shares with his clients.
As a recognized subject matter expert on International Financial Reporting Standards (IFRS), Salvatore was named by the AICPA as an official participant in the development and review of IFRS questions for the Uniform CPA Examination and served as the IFRS Expert-at-Large for the AICPA Board of Examiners Content Committee from 2011-2014. Salvatore also served as AICPA liaison to the International Federation of Accountants (IFAC) Transnational Auditors Committee and Global Peer Review Subcommittee to assist in the development of their international quality assurance review program.
For more information about Salvatore, visit Collemi Consulting & Advisory Services, LLC and LinkedIn.