SAMPLING

THIRD STANDARD OF FIELD WORK (AU ) “SUFFICIENT COMPETENT EVIDENTIAL MATTER IS TO BE OBTAINED THROUGH INSPECTION, OBSERVATION, INQUIRIES, AND CONFIRMATIONS TO AFFORD A REASONABLE BASIS FOR AN OPINION REGARDING THE FINANCIAL STATEMENTS UNDER AUDIT.”

AUDIT RISK LIKELIHOOD OF ISSUING AN UNQUALIFIED OPINION ON MATERIALLY MISSTATED FINANCIAL STATEMENTS AR = IR x CR x DR

SAMPLING RISK LIKELIHOOD THAT THE SAMPLE IS NOT REPRESENTATIVE OF THE POPULATION, THEREFORE INCORRECT CONCLUSION

NON-SAMPLING RISK NOT DUE TO EXAMINING LESS THAN 100% HUMAN ERROR MINIMIZE BY PLANNING, SUPERVISION, QUALITY CONTROL

TESTS OF CONTROLS RISK OF ASSESSING CONTROL RISK TOO LOW –OVERRELY ON CONTROL RISK OF ASSESSING CONTROL RISK TOO HIGH –UNDERRELY ON CONTROL

SUBSTANTIVE TESTS RISK OF INCORRECT ACCEPTANCE RISK OF INCORRECT REJECTION

STATISTICS QUANTIFY SAMPLING RISK CONFIDENCE (1 - RISK) PRECISION (RELATES TO MATERIALITY)

SAMPLING TECHNIQUES ATTRIBUTE SAMPLING –TESTS OF CONTROLS –RATE OF DEVIATION (OCCURRENCE, EXCEPTION) VARIABLES SAMPLING –SUBSTANTIVE TESTS –DOLLAR AMOUNT

ATTRIBUTE SAMPLING SPECIFY THE AUDIT OBJECTIVES –ASSESS CONTROL RISK DEFINE THE EXCEPTION CONDITIONS –MINIMIZE NON-SAMPLING RISK DEFINE THE POPULATION –ALL THE ELEMENTS OF A BALANCE OR CLASS OF TRANSACTIONS –EACH ELEMENT SELECTED FOR TESTING IS A SAMPLING UNIT

DETERMINE SAMPLE SIZE –SAMPLING RISK –TOLERABLE DEVIATION RATE –EXPECTED POPULATION DEVIATION RATE –POPULATION SIZE

SELECT THE SAMPLE –RANDOM –SYSTEMATIC PERFORM THE AUDIT PROCEDURES

EVALUATE THE RESULTS –CALCULATE SAMPLE DEVIATION RATE –RELATE TO TOLERABLE RATE AND RISK OF ASSESSING CONTROL RISK TOO LOW –FOLLOW UP DEVIATIONS DOCUMENT TEST IN WORKPAPERS