Page 129 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes  Sampling is performed because it is more efficient than testing 100% of a population.
 Zero percent examination occurs when the auditor determines that a type of receipt,
deduction, exemption or other item does not need to be tested.
 The haphazard sampling technique is the one adopted by the auditor in cases where the
sample does not follow a structured technique.
 This sampling technique involves the auditor to split items included in a sample into their
different sections.

 The systematic sampling involves the auditor to take the number of sampling units in the
population and segregate this into the sample size so as to provide a sampling interval.

 Sampling risk is actually occurs when the auditor applies the procedure to the small part
of the sample to judge the entire population, the result of it may be different if the
population of the data contains variety, this risk is known to be the sampling risk.
 Overall tax audit risk is made up of the risk of inaccurate records and the risk of
misapplication of the tax law.
 Sampling error refers to a statistical error to which an analyst exposes a model only
because he/she is working with sample data instead of population or census data.

 Statistical sampling applies the laws of probability to determine the percent likelihood
that the sample does not accurately reflect the population.

 A properly designed and applied non-statistical sample can provide results that are accurate
and effective, but will not measure the sampling risk.

 Compliance tests can be performed directly on the control feature itself or indirectly on
the outcome of the control.

 The main reason for performing compliance tests is to reduce the amount of substantive
tests that need to be performed.

 Homogeneous populations can be tested using smaller size samples since there are fewer
exceptional items to skew the results. Non-homogeneous populations require larger size
samples.

7.7 Keywords

Audit risk: The risk that an auditor will not discover errors or intentional miscalculations (i.e.
fraud) while reviewing a company's or individuals financial statements.
Audit sampling: SAS No. 39 defines audit sampling as the application of an audit procedure to
less than 100 percent of the items within an account balance or class of transactions for the
purpose of evaluating some characteristic of the balance or class (AU 350.01).
Bias problems: Unknown or unacknowledged error created during the design, measurement,
sampling, procedure, or choice of problem studied.

Block sampling: Block sampling is a system of sampling that involves choosing segments of
contiguous transactions for a sampling application.
Compliance tests: Audit undertaken to confirm whether a firm is following the rules and
regulations (prescribed by its internal authority or control system) applicable to an activity or
practice.

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