Audit Sampling, Techniques &
Procedures
-ABHIJIT SANZGIRI
CHARTERED ACCOUNTANT
What is Auditing
Auditing - Expression of an opinion
Systematic & independent examination of books, accounts,
documents & vouchers of an organization
Ascertain that the financial statements present a true & fair
view of the concern.
Ensure that the books of accounts are maintained as
required by law.
Types of audit
Statutory Audit
Internal Audit
Concurrent Audit
Tax Audit
Stock Audit
RBI Inspections
Special Audit
Special Assignment
Due diligence Reporting
Audit Sampling
Applying audit procedure to < 100% of the population
Based on objective of the Audit
sufficient understanding of internal control structure to plan the
audit & determine nature, timing & extent of tests to be
performed
Standards on Auditing 530 applies when auditor decides to use
audit sampling in performing audit procedures
Deals with auditor’s use of statistical & non statistical sampling in
designing & selecting the audit sample.
Selection of audit sample
Consider the objectives of the audit procedure.
Characteristics of the population.
Assist in effective & efficient design of sample,
stratification maybe appropriate.
Stratification - Process of dividing a population into sub-
populations
Key points - Audit Sampling
When determining sample size, auditor should consider-
Sampling risk Tolerable error Expected error
• Risk is an • Tolerable Error is • Determining
uncertainty, threat the maximum error expected error
or vulnerability in the population consider matters as-
derailing the that the auditor • the size & frequency
achievement of an would be willing to of errors identified
objective accept. in previous audit,
• Risk is a function of • changes in Entity’s
probability & procedures &
demand evidence available
from other
procedures.
If error is
expected to be
present in the
population, a
larger sample
need to be
examined.
Auditor should
select sample
items in such a
way that the
sample can be
expected to be Risk that the results from the sample
representative of selected may not be representative of the
the population.
entire population.
Analysing Audit Sample
Investigate nature & cause of any deviation or
misstatements identified & their possible effects.
To conclude that a misstatement or deviation is an
anomaly.
Auditor to obtain a high level of certainty that misstatement
or deviation is not representative of the population.
Methods of Audit Sampling
Statistical Sampling
Random Sampling - selecting items from the
population so that each item has an equal chance of
being selected.
Systematic Sampling - selecting every nth item
from the population after a random start.
Non-Statistical Sampling
Haphazard Sampling - selecting items from the
population without consideration to known
characteristics of the items in the population (i.e. any
conscious bias in the selection of population items).
Block Sampling - selecting items from the population
in contiguous groups (or blocks).
Directed Sampling - selecting items from the
population using some pre specified criteria (i.e.,
selecting accounts receivable for confirmation based on
amount of outstanding)
Disadvantages of sampling
Sample transactions could be proper accounting methods, but other
transactions not included in the sample could show evidence of fraud.
Auditors may find few incriminating sample data points & extrapolate a deeper
level of fraud from these when one does not necessarily exist.
The risk of incorrect acceptance-
Recorded account balance is not materially
misstated when it is materially misstated.
The risk of incorrect rejection-
Recorded account balance is materially
misstated when it is not materially misstated.
Sampling Advantage & Disadvantage
Audit Techniques & Procedures
Audit techniques Audit procedures
Tools, methods or Ways of applying
processes by means of techniques to
which an auditor particular phase of an
collects necessary audit
evidence to support his
opinion in respect of
the propositions &
assertions submitted
by the client to him for
his examination.
Audit
Techniques
1) Posting
Verification
2) Vouching
3) Confirmation
4) Physical
Examination
5) Reconciliation
6) Testing
7) Analyses of
Financial Statements
8) Inspection
9) Observation
Audit
Techniques
10) Documentary
examination
11) Scanning
12) Electronic Data
processing
13) Enquiry
14) Computation
15) Analytical Review
16) Compliance test
17) Substantive test
18) Use of computer
Assisted audit
techniques
Allowable Audit Risk
AR = IR x CR x DR
AR - Allowable audit risk that a material misstatement
remains undetected
IR - Inherent risk of a material misstatement assuming there
were no related controls.
CR - Control risk that a material misstatement could occur &
will not be prevented or detected on a timely basis by internal
control.
DR - Detection risk that the auditors’ procedures will fail to
detect a material misstatement if it exists.
Risk based Audit
Resources to be diverted based on level of risks ( H / M / L)
Design of Control – Control Effectiveness
Dip sticks / Walk through
Transaction audit is passé – Process based risk audits.
Easy to give a negative opinion
Identification Assessment Evaluation Management Response Monitoring
Continuous Control Monitoring
Set of technologies to reduce business losses through continuous
monitoring.
Reducing the cost of audits through continuous auditing of the
controls in financial & other transactional applications.
100% real time monitoring.
Deviations / Exceptions highlighted.
Entry not allowed to be processed.
Continuous Audit
“Continuous" aspect refers to the -real-time or near real-time capability for
financial information to be checked & shared.
Indicates integrity of information to be evaluated at any given point of time.
Information verified constantly for errors, fraud & inefficiency.
Automatic method used to perform auditing activities- control & risk assessments
on a more frequent basis.
Technology - key role helping automate identification of exceptions or anomalies.
Analyze patterns within the digits of key numeric fields, review trends & test
controls.
Most detailed audit
Advantages of Continuous Audit
Detailed analyses of data
Minimal Audit risk
No sampling risk
Detection of errors & frauds at an early stage
Challenges in Continuous audit
Accessing complex, diverse system environment
Reluctance to expand the use of technology
Overwhelming results
Training
Documentation
Work papers
Records of planning & performance of work
Demonstrates that the work was actually performed
Evidential support for conclusions reached
Assessment of quality & compliance
Perfection is not attainable ,but if
we chase perfection we can catch
excellence
THANK YOU
