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    Methods of Audit Sampling

    Introduction: 

    SA530 deals with Audit sampling. It came into effect from 1st April 2009. It deals with the Auditor’s use of statistical and non-statistical Sampling when designing and selecting the audit sample and evaluating results from the sample. 

    The application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the Auditor with a reasonable basis on which to draw conclusions about the entire population. 

    The objective of the Auditor, when using audit sampling, is to provide a reasonable basis for the Auditor to draw conclusions about the population from which the sample is selected.

     

    Methods of Audit Sampling:

     

    Sampling Methods are of two types:

     

    • Statistical method

     

    • Non-statistical method

     

    Statistical method:

     

    1. Random sampling method:

     

    It is a method in which every item will be given equal opportunity to be selected in the sample

     

    There are two types of random sampling

     

    • Simple random sampling: In this method each item of population has equal chance of selection. It is suitable for homogeneous population (i.e. Population having similar items)

     

    • Stratified random sampling: In this method, the entire population is divided into separate groups called strata. Each stratum is treated as a separate population and random selection is made from each stratum. This method is an extension of simple random sampling.

     

    Example: The controls in the organization is designed in the following manner Transactions above Rs. 2,00,000/- require approval from Manager

     

    Transactions above Rs. 10,000/- and below Rs. 2,00,000/-require approval from Asst. Manager Transactions below Rs. 10,000/- doesn’t require any approval.

     

     

    Solution: Thus as per the stratified random sampling, population is divided into the following strata’s Transactions above Rs. 2,00,000/-

     

    Transactions ranging between Rs. 2,00,000/- and Rs. 10,000/-

    Transactions below Rs. 10,000/- and picking samples from above strata’s randomly. This enables the auditor to evaluate controls established by the management and form an opinion about its effectiveness.

     

    Advantages of Random Sampling:

     

    1. Simple to use

     

    1. Needs minimum knowledge of population.

     

    Limitations of Random Sampling:

     

    1. It lacks the use of available knowledge concerning the population and

     

    1. Selection of sample becomes difficult if the units or items are widely dispersed.

     

    1. Systematic sampling method:

     

    Under this Method items are chosen in such a way that there is constant interval between the sections.

     

    This method will be more appropriate in case of the population doesn’t correspond to a particular trend.

     

    Systematic sampling can further be classified into two types:

     

    1. Block sampling: Block sampling involves selection of a block of adjoining items within the

     

    Example: First 100 purchase invoices for month of November.

     

    1. Cluster Sampling: In this type of sampling population is divided into groups called cluster. And then a number of clusters are selected on random basis.

     

    Example:1000 sale invoices are divided into 10 clusters having 100 items each. Randomly 3rd,6thand 9th clusters are chosen.

     

    Advantages of systematic sampling: Simple method akin to Judgmental sampling.

     

    Limitations of systematic sampling: This technique is ineffective when the samples selected have similar characteristics and thereby is less effective than random sampling since each item is selected in a systematic manner and not randomly.

     

    iii.  Monetary unit sampling:

     

    Under this method the total monetary value of the population to be verified is divided by the number of samples to be selected. The amount arrived at is considered the benchmark for the sample selection and the transaction at which the cumulative amount touches the benchmark or the multiples of the benchmark amount is included in the list of samples to be vouched.

     

     

    Example:

     

     

     

     

     

     

     

     

     

     

     

     

     

    Total Monetary ValueRs.

    8,70,000/-

     

     

     

     

     

     

     

     

     

     

    Desired Sample

    3

     

     

     

     

     

     

     

     

     

     

    Benchmark

     

     

    Rs. 2,90,000/-

     

     

     

     

     

     

     

     

     

     

    Solution:

     

     

     

     

     

     

    S.No

    Sale value

     

    Cumulative Sale

    Sample to be selected/Not selected

     

    (in Rupees)

     

    value(in Rupees)

     

     

     

     

     

     

     

     

     

     

     

     

     

    1

    1,20,000

     

    1,20,000

     

    No

     

     

     

     

     

     

     

     

    2

    70,000

     

    1,90,000

     

    No

     

     

     

     

     

     

     

     

    3

    1,30,000

     

    3,20,000

     

    Yes

     

     

     

     

     

     

     

     

    4

    50,000

     

    3,70,000

     

    No

     

     

     

     

     

     

     

     

    5

    2,00,000

     

    5,70,000

     

    No

     

     

     

     

     

     

     

     

    6

    1,00,000

     

    6,70,000

     

    Yes

     

     

     

     

     

     

     

     

    7

    1,50,000

     

    8,20,000

     

    No

     

     

     

     

     

     

     

     

    8

    50,000

     

    8,70,000

     

    Yes

     

     

     

     

     

     

     

     

    Non-statistical method:

     

    1. Judgmental Sampling:This method is a non-Probability method where the sample is selected as per the knowledge, experience and professional judgment of the Auditor.

     

    Advantages of judgment sampling are it saves time and cost.

     

    Limitations of judgment sampling are low level of reliability and high levels of bias.

     

    Conclusion:

     

    Thus Audit sampling enables the auditor to focus more on samples selected and helps to provide a reasonable assurance to draw conclusions about the population.

     

    As the present era has taken a huge shift towards technological advancements, the usage of the above methods of sampling has been further supplemented by greater usage of data analysis technology.

     

    “Life is not about finding yourself. Life is all about creating

    -George Bernard Shaw

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