Is Audit Sampling A Reliable Process?
Audit sampling is performed by taking a sample of the company’s financial records and evaluating the same to arrive at an appropriate audit evidence. An auditor can employ either statistical or non-statistical sampling procedures for performing the auditing. Usually, a portion of less than 90% of the items and its account balance is selected with some characteristic features in order to reach a conclusion regarding the whole population.
It is advisable to know the situations when testing procedures do not meet the definition of sampling. This includes
- When the testing is done on all the items within the population, this is not considered as sampling.
- Similar to this condition, if items exhibiting a specific characteristic is selected from a population for auditing, this also does not qualify as an audit sampling course as this portion would not represent the basic features of the rest of the population and hence, it is difficult to arrive at the valid conclusion.
Parameters determining sampling risk
While choosing for the sampling size, the auditor should definitely consider the associated factors like sampling risk, the tolerable and expected value of errors. Moreover, the sampling risk occurs mainly from the auditor’s conclusion derived from the business transaction sample. This is because there can be chances that a totally different conclusion may have been attained if the entire population was made liable for the same audit procedures.
Typically, the auditor faces sampling risk with the following
- A Series of test control.
- Associated risk under reliance. There can be chances that the compliance rate balances the auditor’s assessment even though the sampling does not support the auditor’s evaluation of control risk.
- Allied risk over-reliance. There are times when the sample result greatly enhances the auditor’s assessment of control risk, but the observance rate does not support the same assessment.
- The reliable and practical procedures.
- There can be a risk involved with wrong rejection. In this case, the sampling proves the arrived conclusion that a section of the balance account or transaction record is materially manipulated whereas it actually renders true information.
- Risk of wrong acceptance. Here the sample result is compatible with the conclusion that the amount balance and other transaction records are not materially misinterpreted.
Both the risk under reliance and that related to wrong rejection can upset the audit efficacy that would lead to reworking on the procedures done by the auditor. So, better consider these hidden risk factors for maintaining the audit value.