Auditing - Audit Sampling

These days, auditors may not go for detailed examination and verifications of records. With the introduction of efficient internal control system in organizations, Auditors pick selective portion of entries out of complete data for making judgement on the complete data.

Checking of all transaction and verifying entries and record of the business was a common practice in earlier years; this is almost obsolete in the present modern system of auditing. Since there is no statutory obligation for the Auditor to check whole transactions, thus the Auditor decides at his own level about the extent to which checking should be applied.

What is Audit Sampling?

Sampling is a technique, based on the assumption that, by and large, every sample has almost the same characteristics of the complete data it is representing. Sampling means the selection and verification of a portion of accounting entries and records out of total similar data. It provides reasonable basis to the Auditor to conclude about the population.

An Auditor may apply test checks where adequate internal control system is adopted by the organization and it is widely accepted in accounting and auditing profession. In it, the Auditor goes for selective verification instead of checking all the entries in the books.

No doubt, this technique may provide a certain degree of reliability instead of complete reliable results. If, there is a satisfactory internal control system in any organization, a lesser degree of reliability of sample result may be acceptable.

Test Checking

Nature, size and materiality of transactions are the basis, which are kept by the Auditor in his mind for his own judgements for selecting a sample of entries to be checked. Normally, accounts having material impact and entries involving large amounts are checked thoroughly and balance entries are checked on at random basis.

The advantage of this technique is that if any error or fraud detected out of unchecked entries will not create any material impact on fairness and truth of financial statements. Disclosure, presentation, accounting standards, provision of law and arithmetical accuracy are other aspects on the basis of which, the Auditor gives his judgement.


Following precautions must be taken to apply test checking technique.

  • Selected transactions for test check plan should be free from any bias.

  • Number of transactions includes in test check should be on the basis of the experience of an Auditor.

  • Purpose of voucher checking should be based on the clear objectives of authorization or payment made or recording in the books.

  • Transactions might be classified in sub-group, in case where, there is a wide variety of transactions in a group.

  • Some transactions should be identified during audit and those are to be checked thoroughly.

  • During audit, if any error or fraud is identified, those should be further investigated thoroughly.

  • Internal control system of organization should be studied thoroughly to decide at what extent the test checks are to be applied.

  • Complete procedures and processing of transactions should be studied from starting to end.

What is Statistical Sampling?

Statistical sampling refers to an approach to sampling that has the following characteristics −

  • Random selection of sample items, and

  • The use of probability theory to evaluate sample results, including measurement of sampling risk.

Sampling without the above characteristics is to be considered as a non-statistical approach. Whatever may be the sampling approach, the sample must be similar to the larger data it represents? Non-statistical sampling is neither scientific nor objective. Reliability of audit objectives can be measured in statistical sampling.

Advantages of Statistical Sampling

Following are the advantages of Statistical Sampling −

  • Increase in the size of population does not mean increase in sample size.

  • Indication of specific risk and precision are associated with estimation of minimum sample size.

  • This technique is free from any association of human bias.

  • With minimum efforts, cost and time, it provides maximum information.

  • Sample represents the whole population.

  • For verification of work-in-progress and inventory, it is a very useful technique because total errors can be predicted on the basis of errors in the sample.


Following are the limitations of statistical sampling −

  • Without effective and adequate internal control system, this technique cannot work properly.

  • Without adequate size and sample, result of it can be misleading.

  • This technique requires more time and energy which is not practical in certain situations.

Prerequisites of Statistical Sampling

Following are the prerequisites of Statistical Sampling −

  • Every item in population has equal chance of selection for sampling and each selected item for sample is of equal importance.

  • There must be an appropriate size of sample to enable the Auditor to form an opinion about the genuinity of financial statements.

  • Sample should be representative of the whole population.

Important Points From SA-530

Let us now discuss a few important points from SA-530.

Sample design, size and selection of items for testing

When designing an audit sample −

  • the Auditor shall consider the purpose of the audit procedures and the characteristics of the population from the which the sample will be drawn.

  • the Auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level.

  • the Auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection.

Performing Audit Procedures

The Auditor shall perform audit procedures, appropriate to the purpose, on each item selected. If the audit procedure is not applicable to the selected item, the Auditor shall perform the procedures on a replacement item.

It the Auditor is unable to apply the designed audit procedures, or suitable alternative procedures, to a selected item, the Auditor shall treat that item as a deviation from the prescribed control, in the case of tests of controls, or a misstatement, in the case of tests of details.

Nature and cause of deviation and misstatement

The Auditor shall investigate the nature and causes of any deviations or misstatements identified, and evaluate their possible effect on the purpose of the audit procedure and on other areas of the audit.

In extremely rare circumstances when the Auditor considered a misstatement or deviation discovered in a sample to be an anomaly, the Auditor shall obtain a high degree of certainty that such misstatement or deviation is not representative of the population. The Auditor shall obtain this degree of certainty by performing additional audit procedures to obtain sufficient appropriate audit evidence that the misstatement or deviation does not affect the reminder of the population.

Projecting Misstatement

For the test of details, the Auditor shall project misstatements found in the sample to the population.

Evaluating Results of Audit Sampling

The Auditor shall evaluate −

  • The results of sample, and

  • Whether the use of audit sampling has provided a reasonable basis to conclude that the larger population has been tested.

Methods of Sample Selection

Following methods can be used for sample selection −

  • Systematic Random Sampling
  • Random number Table
  • Stratified Random Sampling
  • Systemic sampling
  • Haphazard sampling