Decision to use Sampling

According to normally accepted standards of auditing, an auditor need not examine each and every item of a large sized database. He can go for sampling, which saves considerable cost and time without sacrificing quality. Under sampling, an auditor establishes proper confidence limits and selects a sample, which can be a true representative of the entire population from which it is chosen. Sampling enables the auditor to express his opinion on the financial information without examining the entire evidence. But such sampling can be adopted for low risk-items forming large size population. In case of high risk items like large dollar value transactions, an auditor would prefer to examine all items of the entire population. Similar is the case with high risk items with certain attributes like overdue accounts receivable or slow moving inventory, where the auditor chooses to examine item by item of the population. If there is an opinion that there may be some approximation in audit opinion due to sampling, it is not totally correct. Even if one goes for 100% testing without any sampling, non-sampling errors cannot be avoided. In fact, many times sampling lessens the impact of non-sampling errors.

There are certain considerations to be followed in applying sampling techniques. Proper care should be exercised in sample selection, so that it is a true representative of the population from which it is selected. Otherwise it is not possible to ascribe its characteristics to the entire population. The sample selection should also be random so that the client does not manipulate the characteristics of the sample and thereby those of the population itself. Level of assurance that is confidence that the population will be sufficiently represented by the sample and the precision will influence the sample size. If there are any errors in the sample, they should not be brushed as one-time phenomena but should be accepted as being present in the entire population.

In between statistical and non-statistical or judgemental sampling, statistical sampling methods are considered superior because they are based on mathematical principles and are more objective. All sampling approaches have the risk of making incorrect projections. But statistical sampling enables the auditor to measure and reduce such risk. It also helps in reducing errors in projections due to non-sampling mistakes.

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