Selecting Items for Testing to Gather AuSelecting Items for Testing to Gather Audit Evidence

Selecting Items for Testing to Gather Audit Evidence

25 When designing audit procedures, the auditor shall determine appropriate means of selecting items for testing.

26 The means available to the auditor are:

(a) selecting all items (100% examination);

(b) selecting specific items; and

(c) audit sampling.

27 Ordinarily, the decision as to which approach to use will depend on the circumstances, and the application of any one or combination of the above means may be appropriate in particular circumstances. While the decision as to which means, or combination of means, to use is made on the basis of the risk of material misstatement related to the assertion being tested and audit efficiency, the auditor ordinarily gains satisfaction that methods used are effective in providing sufficient appropriate audit evidence to meet the objectives of the audit procedure.

Selecting All Items

28 The auditor may decide that it will be most appropriate to examine the entire population of items that make up a class of transactions or account balance (or a stratum within that population). 100% examination is unlikely in the case of tests of controls; however, it is more common for tests of details. For example, 100% examination may be appropriate when the population constitutes a small number of large value items, when there is a significant risk and other means do not provide sufficient appropriate audit evidence, or when the repetitive nature of a calculation or other process performed automatically by an information system makes a 100% examination cost effective, for example, through the use of computer-assisted audit techniques (CAATs).

Selecting Specific Items

29 The auditor may decide to select specific items from a population based on such factors as the auditor’s understanding of the entity, the assessed risk of material misstatement, and the characteristics of the population being tested. The judgemental selection of specific items is subject to non-sampling risk. Specific items selected may include:

• High value or key items. The auditor may decide to select specific items within a population because they are of high value, or exhibit some other characteristic, for example items that are suspicious, unusual, particularly risk-prone or that have a history of error.
• All items over a certain amount. The auditor may decide to examine items whose values exceed a certain amount so as to verify a large proportion of the total amount of class of transactions or account balance.
• Items to obtain information. The auditor may examine items to obtain information about matters such as the nature of the entity, the nature of transactions, and internal control.
• Items to test control activities. The auditor may use judgement to select and examine specific items to determine whether or not a particular control activity is being performed.

30 While selective examination of specific items from a class of transactions or account balance will often be an efficient means of gathering audit evidence, it does not constitute audit sampling. The results of audit procedures applied to items selected in this way cannot be projected to the entire population. Under paragraph 25 of this Auditing Standard, the auditor needs to consider the approach needed to obtain sufficient appropriate audit evidence regarding the remainder of the population when that remainder is material.

Audit Sampling

31 The auditor may decide to apply audit sampling to a class of transactions or account balance. Audit sampling can be applied using either non-statistical or statistical sampling methods. Audit sampling is discussed in detail in paragraphs 35-65.