Audit sampling definition
/What is Audit Sampling?
Audit sampling is the use of an audit procedure on a selection of the items within an account balance or class of transactions. The sampling method used should yield an equal probability that each unit in the sample could be selected. The intent behind doing so is to evaluate some aspect of the information. Audit sampling is needed when population sizes are large, since examining the entire population would be highly inefficient. There are multiple ways to engage in audit sampling, including the methods noted below.
Block Sampling
Under block sampling, consecutive series of items are selected for review. This technique is often used when there is a need for efficiency, especially in testing transactions that occur in batches or sequences. The block sampling process is as follows:
Define the population. Identify the total set of items (e.g., invoices, transactions, inventory records).
Determine the block size. Decide on the number of consecutive items to be tested (e.g., 50 or 100).
Select the starting point. Randomly choose a starting point within the population.
Examine the block. Test all items in the selected block for compliance or accuracy.
Block sampling is a better choice when transactions are processed in sequential order, in preliminary assessments where broad compliance is expected, or for internal control testing where systematic issues are unlikely.
Advantages and Disadvantages of Block Sampling
The main advantages of block sampling are that it is easy to implement and takes less time and effort than more complex sampling methods. However, the results of block sampling may not reflect the characteristics of the entire population. Also, it is susceptible to sampling bias due to clustering of similar items.
Example of Block Sampling
For example, an auditor elects to use block sampling to examine customer invoices, and intends to pick 50 invoices. She picks invoice numbers 1000 through 1049. As another example, the auditor decides to pick all invoices issued on April 15.
Haphazard Sampling
Haphazard sampling is a nonstatistical sampling method in which the auditor selects items without following a structured pattern, while still avoiding intentional bias. Although the selection appears random, it does not provide the same level of assurance as true statistical sampling because probability of selection cannot be measured. It is often used for simple tests or when the population is homogeneous. However, auditors must be careful to avoid subconscious patterns that could distort the sample’s representativeness.
Advantages and Disadvantages of Haphazard Sampling
Haphazard sampling is easy to apply and requires little planning, which makes it useful for quick procedures and situations where the population is fairly uniform. It also avoids the cost and complexity of designing a formal statistical sample. However, the method does not provide measurable sampling risk, so the auditor cannot quantify how representative the sample is. It is also vulnerable to unintentional bias, since subconscious selection patterns may reduce the reliability of the results.
Example of Haphazard Sampling
An auditor performing a cash disbursements test might walk to the filing cabinet and pull several invoices from different sections without following a specific pattern. The auditor avoids choosing items that look unusual or overly similar, but does not use a random-number table or systematic interval. The goal is simply to obtain a mix of documents that seem representative of the overall population. Because the selection is not statistically structured, the auditor cannot measure how likely the sample is to reflect the full population.
Personal Judgment
Under the personal judgment approach, the auditor selects sample items based on professional experience rather than random selection. The auditor may emphasize large balances, unusual transactions, complex entries, or items presenting greater control or fraud risk. This method can target important matters efficiently, but it does not produce a statistically representative sample and may introduce conscious or unconscious selection bias.
Advantages and Disadvantages of Personal Judgment
Personal judgment allows auditors to focus on large, unusual, or high-risk items, making testing efficient and responsive to known concerns. It also permits experienced auditors to incorporate knowledge of the client and industry. However, the approach may introduce selection bias, overlook unexpected errors, and produce a sample that is not representative or suitable for statistical projection to the population.
Example of Personal Judgment
An auditor reviewing accounts receivable personally selects all customer balances exceeding $100,000, several past-due accounts, transactions involving related parties, and accounts with unusual credit adjustments. The auditor chooses these items because they present greater monetary or control risk. Although the sample targets significant concerns, it may not represent the characteristics of the entire accounts receivable population fairly.
Random Sampling
Under random sampling, a random number generator is used to make selections. This approach is the most theoretically correct, but can require more time to make selections.
Stratified Sampling
Under stratified sampling, the auditor splits the population into different sections (such as high value and low value) and then selects from each section.
Systematic Sampling
Under systematic sampling, selections are taken from the population at fixed intervals, such as every 20th item. This tends to be a relatively efficient sampling technique.