Audit Sampling – Are you really complying with the correct standard?
Are you using audit sampling methodology correctly? Or, are you selecting specific items for testing? Or, both? Is there a difference? We explore these questions in this blog.
As auditors, we know that we must collect and document sufficient and appropriate audit evidence to reduce our audit risk to an acceptable level when assessing account balances at the assertion level. We know it is important to choose the most appropriate means for collecting this sufficient and appropriate audit evidence as we are told this from the Australian Auditing Standards, in this case, ASA 500 Audit Evidence and ASA 530 Audit Sampling. These two standards assist the auditor with choosing the appropriate audit approach.
At Caseware, we are beginning to notice that some auditors might not be applying the Standards correctly and are over relying on the tools provided within the software, without a clear understanding of the concepts behind the Caseware Audit System tools and how they relate to the two relevant auditing standards – ASA500 and ASA530.
So, let’s define these clearly.
ASA 500.10 states that when designing tests of controls and tests of detail, the auditor shall determine the means of selecting items for testing that are effective in meeting the purpose of the audit procedure. The application material at ASA 500 Paragraphs A52-A56 provides guidance and says the means or options available to the auditor for selecting items for testing are:
- Selecting all items (100% examination)
- Selecting specific items; and
- Audit Sampling (refer to ASA 530 if applicable)
The application of any one or combination of these means may be appropriate depending on the particular circumstances. For example, the risks of material misstatement related to the assertion being tested, and the practicality and efficiency of the different means.
Where the auditor decides that either 1) selecting all items or 2) selecting specific items from the population is the most effective audit plan, then ASA 500 is the applicable auditing standard to comply with – not ASA 530.
Where it has been decided by the auditor to apply audit sampling methodology as the most effective and efficient means of collecting audit evidence, ASA 500 refers the auditor to ASA 530 as the applicable standard. It needs to be clear in our audit documentation which approach is being adopted.
For clarity, audit sampling is designed to enable conclusions to be drawn about an entire population on the basis of testing a sample drawn from it. ASA 530.5 defines sampling as “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”. This dictates an objective and unbiased selection method.
In addition, ASA 530.8 requires the auditor select items for the sample in such a way that each sampling unit in the population has a chance of selection. This is the critical differentiating criteria when understanding the concept of audit sampling versus the selection of specific items for testing. The latter being done judgementally, and based on the audit findings, does not allow for conclusions to be drawn from the population on the basis of items tested.
Caseware provides a default tool Sample Size Calculation Worksheet for all FSA sections from B – Cash to X – Payroll. The tool assists you by providing a risk assessment link between the FSA and the worksheet, and should only be used if you decide that the most effective means of obtaining sufficient and appropriate audit evidence is through the use of audit sampling pursuant to ASA 530 only. Where the auditor is not using sampling, you should refer to ASA 500 and employ either 100% examination or selecting specific items for testing.
In conclusion, we suggest it would be worth reviewing ASA 500 Application paragraphs at A52 – A56 to refresh and assist your understanding of the requirements in relation to the means of obtaining audit evidence.
The Sample Size Calculation Worksheet in Caseware provides a useful tool when specifically using audit sampling as defined in ASA 530. It has an in-built link to the FSA’s inherent and control risk assessment worksheet to ensure the risks are correctly captured on your file – but only when you are using audit sampling.