Design of the SampleDesign of the Sample

Design of the Sample

35 When designing an audit sample, the auditor shall consider the objectives of the audit procedure and the attributes of the population from which the sample will be drawn.

36 Under paragraph 35 of this Auditing Standard, the auditor needs to first consider the specific objectives to be achieved and the combination of audit procedures which is likely to best achieve those objectives. Consideration of the nature of the audit evidence sought and possible error conditions or other characteristics relating to that audit evidence will ordinarily assist the auditor in defining what constitutes an error and what population to use for sampling.

37 The auditor ordinarily considers what conditions constitute an error by reference to the objectives of the audit procedure. A clear understanding of what constitutes an error is important to ensure that all, and only, those conditions that are relevant to the objectives of the audit procedure are included in the projection of errors. For example, in a test of details relating to the existence of accounts receivable, such as confirmation, payments made by the customer before the confirmation date but received shortly after that date by the client are not considered an error. Also, a misposting between customer accounts does not affect the total accounts receivable balance. Therefore, it is not appropriate to consider this an error in evaluating the sample results of this particular audit procedure, even though it may have an important effect on other areas of the audit, such as the assessment of the likelihood of fraud or the adequacy of the allowance for doubtful accounts.

38 When performing tests of controls, the auditor generally makes an assessment of the rate of error the auditor expects to find in the population to be tested. Ordinarily, this assessment is based on the auditor’s understanding of the design of the relevant controls and whether they have been implemented or the examination of a small number of items from the population. Similarly, for tests of details, the auditor generally makes an assessment of the expected amount of error in the population. These assessments are ordinarily useful for designing an audit sample and in determining sample size. For example, if the expected rate of error is unacceptably high, tests of controls will normally not be performed. However, when performing tests of details, if the expected amount of error is high, 100% examination or the use of a large sample size may be appropriate.

Population

39 Under paragraph 35 of this Auditing Standard, the auditor needs to obtain reasonable assurance that the population is:

(a) appropriate to the objective of the audit procedure, which will include consideration of the direction of testing. For example, if the auditor’s objective is to test for overstatement of accounts payable, the population could be defined as the accounts payable listing. On the other hand, when testing for understatement of accounts payable, the population is not the accounts payable listing but rather subsequent disbursements, unpaid invoices, suppliers’ statements, unmatched receiving reports or other populations that provide audit evidence of understatement of accounts payable; and