The auditing standards related to the performance of the work establish the obligation of the auditor to obtain, through his audit procedures, sufficient and competent evidential matter to provide an objective basis for his opinion.
sampling-audit-financial-statements-presentationTo obtain this supporting evidence, the auditor is not obliged to examine each and every one of the company's transactions, since by means of a representative sample, he can obtain the evidence that is required.
Representative sampling methods:
Statistical
Not statistical.
Both require that all the games in the universe have the same opportunity to be selected, which results in obtaining a representative sample of it. Statistical sampling has the advantage of allowing us to accurately quantify the security we obtain.
Sampling selection techniques • Statistical sampling: It is one in which the determination of the sample size, the selection of the items that comprise it and the evaluation of the results, are made by mathematical methods based on the calculation of probabilities.
• Types of statistical sampling:
• Attribute
sampling • Variable sampling.
The selection technique for sampling in the audit is based on random or random selection, which is what ensures that all items within the universe or within each stratum have the same possibility of being selected, for example, through the use of tables of random numbers.
Sample selection techniques
Random selection modalities:
Systematic selection. It consists of the selection of games by using a constant interval between one selection and another. The interval can be based on a certain number of items (for example, every twenty voucher numbers) or on monetary totals (for example, every $ 1,000 in accumulated value of the universe).
Casual selection. It could be an alternative, as long as the auditor tries to obtain a representative sample of the total universe without any intention of including or excluding specific units (biased selection).
Fixed Range Selection Example
Random selection vs. selection by fixed range
Attribute sampling
Attribute sampling is the one whose objective is to estimate the frequency (in percentage) with which certain characteristics are present in the universe, based on the frequency observed in the sample examined.
Attribute sampling consists of examining items to determine the presence or absence of specific attributes. Attributes are characteristics that can be tested and present or not present in each game. It is normally used for "compliance tests" of controls (multiple attributes):
- Requisition of authorized material.
- Authorized purchase order. - Quotation of 3 suppliers.
- Store entry note.
- Supplier invoice comparison vs. purchase order.
- Copy of invoice processed by accounting.
Sample design
Aspects to consider when designing a sample:
a) Objectives of the audit.
b) Universe.
c) Risk and uncertainty.
d) Tolerable error.
e) Expected error in the universe.
a) Objectives of the audit
What is the specific objective you want to achieve?
For example, when conducting compliance testing of a company's purchasing procedures, the auditor will be interested in matters such as whether an invoice was reviewed by an employee and duly approved.
On the other hand, when carrying out substantive tests of invoices processed during the period, the auditor will be interested in matters such as the fact that the monetary amounts of such invoices are adequately reflected in the financial information.
b) Universe
The body of data from which the auditor wishes to extract samples to reach a conclusion is called universe.
1. If the auditor's objective is to determine that no accounts receivable have been recorded in excess of the actual ones, the universe could be defined as the balance of accounts receivable on the trial balance.
2. On the other hand, if you were trying to determine if the number of accounts payable is lower than the real one, your universe would not be the balance of accounts payable, but possibly subsequent payments, outstanding invoices, reports of Warehouse entries that do not match the purchase invoice and other universes that could provide evidence that posted accounts payable are lower than actual.
c) Risk and uncertainty
Audit risks include:
- The risk that major errors will occur (inherent risk).
- The risk that the client's internal accounting control system will not prevent or correct such errors (control risk) and
- The risk that any other significant error will not be detected by the auditor (detection risk).
c) Risk and uncertainty
The risk in sampling, for compliance or substantive tests, arises from the possibility that the auditor's conclusion, based on a sample, could differ from the conclusion that would have been reached if he had applied the same audit procedure to the entire universe. It can be presented in two ways:
a) that the conclusion of the sample is negative, that is, that it indicates that the internal accounting controls of the Company cannot be trusted (compliance tests) or that the balance is incorrect (substantive tests), but that really, if Had the test been applied to the whole universe, the conclusion would have been positive and b) the conclusion of the sample is positive, but if the test had been applied to the whole universe, the conclusion would have been negative.
d) Tolerable error
Tolerable error is the maximum error in the universe that the auditor would be willing to accept and still conclude that the sampling result has reached its audit objective.
In compliance procedures, the tolerable error is the maximum percentage of deviation from a prescribed control procedure that the auditor would be willing to accept without altering the degree of confidence he planned to place in the control he is testing. In the case of substantive procedures, the tolerable error is the maximum monetary error in an account balance or type of transaction that the auditor would be willing to accept so that by considering the results of all audit procedures, he is in a position to conclude with reasonable assurance that the financial information does not contain material errors.
e) Expected error in the universe
If the auditor expects the presence of error, he will normally have to examine a larger sample to conclude that the universe value is reasonably presented within the estimated tolerable error or that the planned reliance on a significant control is justified. Smaller samples are justified when the universe is expected to be error free.
In determining the expected error in a universe, the auditor should consider such matters as levels of error identified in previous audits, changes in client procedures, and available evidence from his evaluation of the internal accounting control system and the results of audit procedures. analytical review.
Analysis of errors in the sample
When designing the sample, the auditor will have defined those conditions that constitute an error by means of reference to the objectives of his audit. For example, in the case of a substantive procedure related to the recording of accounts receivable, a reclassification between one customer account and another does not affect the total sum of accounts receivable. Therefore, it may be inappropriate to view this as an error when evaluating the sampling results of this particular procedure, even though it may have an impact on other areas of the audit, such as the evaluation of doubtful accounts.
Analysis of errors in the sample
In those cases where supporting documentation for sample items cannot be located, the auditor may be able to obtain the audit evidence through the application of alternative procedures. For example, if an account receivable confirmation has been sent to a client and no response has been received, the auditor may obtain audit evidence by reviewing subsequent payments made by the client. If the auditor does not apply or is unable to apply alternative procedures in relation to the missing sample item, the auditor should treat the item as an error for the purposes of their evaluation of the audit evidence.
Projection of errors
The auditor must project the results of the errors located in the sample, to the universe from which said sample was selected. There are several accepted methods for projecting error results. However, in all cases the projection method should be consistent with the method used to select the sampling unit. When projecting error results, the auditor should always bear in mind the qualitative aspects of the errors found. When the universe is divided into two or more subuniverses (stratification), the error projection is done separately for each subuniverse and the results are added.
The auditor should take into consideration whether the errors in the universe could exceed the tolerable error limit. For this purpose, the auditor must compare the projected error in the universe with the tolerable error and then also compare the results of the sampling with those of other relevant audit procedures, in order to conclude on the balance of an account, type of transaction or specific control. The projected error of the universe for this comparison will be net of the adjustments made by the client.
In the case of compliance procedures, the evaluation of errors may result in the auditor reaching the conclusion that the sample results do not support the degree of confidence planned for a control procedure. In this case, you can ensure that there is another appropriate control that you can trust after applying appropriate compliance procedures.
When the results are positive, the auditor can express a satisfactory opinion about the sampled universe; however, when the result is negative, it will be necessary to perform other procedures to ensure the reasonableness of the universe.
Now, if the results of the sample show a number of errors that are close to the tolerable error of the sample, this result indicates an inherent risk that in case of having examined a higher sample or the whole of the universe, the errors could exceed the tolerable error limit and in these cases the auditor should consider extending his tests.
* Consider the effect of taxes.
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