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New AICPA Audit Sampling Guide

Questions and answers from the team at AuditWatch.

October 9, 2008
Sponsored by AuditWatch

Haven’t read the recently revised AICPA Audit Guide on Audit Sampling? Here are the answers to commonly asked questions to familiarize you with it.

Why was the Sampling Guide revised?

The Guide was updated to conform with recently-issued auditing standards, specifically SASs 102 through 114 (“risk assessment standards”). These standards had a significant impact on the way audits are performed. This publication provides guidance on sampling consistent with those standards. Additionally, the authors address common sampling issues, including the way planning materiality is determined, selection of sample sizes, statistical vs. non-statistical sampling, control testing samples and more.

What are the major topics covered in the Guide?

The Guide is organized into the following chapters:

  1. Defining audit sampling — what is sampling and what is not
  2. Overview of different approaches to sampling
  3. Using sampling in tests of controls.
  4. Using sampling in substantive tests
  5. A case study on non-statistical sampling in substantive tests
  6. Overview of monetary unit sampling, including a case study
  7. Using computer programs to perform sampling, including a case study

Does the Guide require auditors to use statistical sampling?

No, statistical sampling is not required. SAS 111, Amendment to Statement on Auditing Standards No. 39, Audit Sampling, states that non-statistical sampling would ordinarily “result in a sample size comparable to the sample size from an efficiently designed statistical sample, considering the same sampling parameters.” The Guide therefore provides information and guidance on using both methods of sampling.

What does the Guide say about materiality?

Previous versions of the Sampling Guide included an appendix to assist auditors in computing planning materiality using a standard table; this table is not included in the new Guide. This change conforms with the guidance set forth in SAS 107, Audit Risk and Materiality in Conducting an Audit, which emphasizes the need to consider the user of the financial statements in determining planning materiality. Auditors should recognize that the use of judgment is critical in determining planning materiality and that the result of that judgment should flow through to substantive sampling calculations performed during the audit.

Can control reliance be obtained by performing walkthroughs?

Perhaps. The Guide states that “when the auditor has … assessed the design (of controls) as effective and has obtained evidence that the controls have been implemented, the auditor might use a slightly lower confidence level for substantive tests of details.” In other words, an auditor may be able to “slightly” reduce the level of substantive testing performed (although it is not expected that this would have a significant impact). Many firms do not use a “slightly below maximum” risk category, but the guidance reflects that it would be an acceptable choice.

How do I determine sample sizes for testing controls?

The Guide includes tables to help auditors determine sample sizes in specific situations. The tables use input factors such as risk and expected deviation rates to help an auditor determine how many items should be tested. Sample sizes vary based on differences in the assessment of these factors. Some firms’ audit methodologies include forms that provide guidance to auditors on control testing sample sizes. Those forms incorporate similar statistical theories in determining the sample size.

How do I calculate a sample size for controls when the population
is small?

Often a company’s most important controls — such as bank reconciliations or transactional reviews — do not happen every day. When a control happens less frequently, the Guide refers to these as “small populations.” The following Guide table helps auditors test controls of small populations:

Table 3.5: Small Population Sample Size Table

Control Frequency and Population Size

Sample Size (items to test)

Quarterly (4)

2

Monthly (12)

2-4

Semi-monthly (24)

3-8

Weekly (52)

5-9

Do I have to be a sampling expert to understand the
sampling guidance?

No! The Guide was written to help auditors understand how to apply common sampling procedures. Most importantly, it helps auditors consider appropriate factors in preparing for and performing audit procedures involving sampling. The Guide also includes tables that can assist in calculating samples sizes. We recommend that key engagement team members be familiar with the recommendations in the Guide, especially those involved in decisions about audit risk, materiality and the design of audit procedures.

— From the accounting and auditing specialists at AuditWatch, part of the CPE & Training Solutions available from the Tax & Accounting business of Thomson Reuters. Copyright September 2008. To read more about AuditWatch, visit trainingcpe.thomson.com/AuditWatch.