These notes are incomplete without our videos. We keep on updating our books, notes and videos.

You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Chapter 7 and SA 530 “Audit sampling”

Meaning of Sampling

According to SA 530 - Audit sampling (sampling)

- 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 Standard on Auditing (SA) applies when the auditor has

- decided to use audit sampling in performing audit procedures.

It deals with the auditor’s

- use of statistical and non-statistical sampling when
- designing and selecting the audit sample,
- performing tests of controls and tests of details, and
- evaluating the results from the sample.

We can also say that sampling is one of the means to select samples for testing.

Sampling is also known as test check

Precautions to be taken while applying test check techniques.

● Thorough study of accounting system should be done before adopting sampling

● Proper study of internal control systems.
● Areas which are not suitable for sampling should be carefully considered. Eg: compliance with
statutory provisions, transactions of unusual nature etc.
● Proper planning for Sampling methods to be used and explaining the staff,
● Transactions and balances have to be properly classified (stratified)
● Sample size should be appropriately determined.
● Sample should be chosen in unbiased way,
● Errors located in the sample should be analysed properly.

Population

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 1

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Meaning
Population refers to the entire set of data from which a sample is selected and about which the auditor
wishes to draw conclusions.

Characteristics

Appropriateness
Appropriate means the population from which the samples are drawn shall be relevant for the specific
objective. Auditor will choose the sample and test it and then will project the results on the entire population.

Appropriateness 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;

Completeness.
- Conclusion about the entire population can be drawn only when the population is complete
- For example, if the auditor intends to select payment vouchers from a file, conclusions cannot be
drawn about all vouchers for the period unless the auditor is satisfied that all vouchers have in fact
been filed.

Reliable
Auditors should obtain evidence about the reliability of the population. If the population is not reliable with
respect to accuracy and source, the sample drawn will definitely not be relevant for the specific audit
objective.

Sampling Unit
- The individual items constitute a population.
- For example checks listed on deposit slips, credit entries on bank statements, sales invoices or
debtors’ balances, or a monetary unit.
- The conclusion on the population is based on the audit procedures applied on the sampling unit.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 2

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

SAMPLE DESIGN, SIZE AND SELECTION OF ITEMS FOR TESTING

Sample Design

While designing an audit sample auditor should consider the

● purpose of audit procedure and
● characteristic of population from which the sample will be drawn

The auditor first considers

● the specific objectives to be achieved and
● the combination of audit procedures which is likely to best achieve those objectives.

Auditor has to clearly define what will be considered as a misstatement. It will help the auditor in projecting
the misstatement in the population.

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 a misstatement.

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.
- 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 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.

Sample Size

● The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level.
● The level of sampling risk that the auditor is willing to accept affects the sample size required.
● The lower the risk the auditor is willing to accept, the greater the sample size will need to be
● The sample size can be determined by the application of a statistically-based formula or through the
exercise of professional judgement. There are various factors typically on the determination of sample

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 3

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

size. When circumstances are similar, the effect on sample size of factors will be similar regardless of
whether a statistical or non- statistical approach is chosen.

Examples of Factors Influencing Sample Size for Tests of Controls

The following are factors that the auditor may consider when determining the sample size for tests of
controls.

FACTOR EFFECT ON SAMPLE SIZE

An increase in the extent to which the auditor’s risk assessment takes into Increase
account relevant controls

An increase in the tolerable rate of deviation Decrease

An increase in the expected rate of deviation of the population to be Increase

tested

An increase in the auditor’s desired level of assurance Increase

Examples of Factors Influencing Sample Size for Tests of Details

The following are factors that the auditor may consider when determining the sample size for tests of details.

FACTOR EFFECT ON SAMPLE SIZE

An increase in the auditor’s assessment of the risk of material misstatement Increase

An increase in the use of other substantive procedures directed at the same Decrease
assertion.

An increase in the auditor’s desired level of assurance. Increase

An increase In Tolerable misstatement. Decrease

An increase in the amount of misstatement the auditor expects to find in Increase

the population

Stratification of the population when appropriate Decrease

Selection of Items for Testing (Selecting the sample)

● The auditor should select items for the sample with the expectation that all sampling units in the
population have a chance of selection.
● Statistical sampling requires that sample items are selected at random so that each sampling unit
has a known chance of being selected.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 4

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

● The sampling units might be physical items (such as invoices) or monetary units.
● With non-statistical sampling, an auditor uses professional judgement to select the items for a
sample.
● Because the purpose of sampling is to draw conclusions about the entire population, the auditor
endeavours to select a representative sample by choosing sample items which have characteristics
typical of the population, and the sample needs to be selected so that bias is avoided.

Whatever may be the approach of non-statistical or statistical sampling, the sample must be representative.
This means that it must be closely similar to the whole population although not necessarily exactly the same.

The sample must be large enough to provide statistically meaningful results

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 5

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Sampling Risk

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 6

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Sampling Risk in Test of Details

The recorded value of population is

OK Not OK

OK ● Correct Decision ● Incorrect Decision

● Risk of Incorrect
Acceptance
● Not effective
The sample indicates
that the population is Not OK ● Incorrect Decision ● Correct Decision
● Risk of Incorrect
Rejection
● Not Efficient

Sampling Risk in Test of Control

The actual operation of control is

OK Not OK

OK ● Correct Decision ● Incorrect Decision

● Risk of Over reliance
● Risk of assessing the CR
The sample indicates
too low
that the control in
operation in ● Not effective

Not OK ● Incorrect Decision ● Correct Decision

● Risk of under reliance
● Risk of Assessing the
CR too high
● Not Efficient

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 7

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Non-Sampling Risk

“Non-sampling risk” arises from factors that cause the auditor to reach an erroneous conclusion for any
reason not related to the size of the sample.

For example,
- ordinarily the auditor finds it necessary to rely on audit evidence that is persuasive rather than
conclusive,
- the auditor might use inappropriate audit procedures, or
- the auditor might misinterpret audit evidence and fail to recognize an error.
- Human Mistakes

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 8

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Tolerable Misstatement and Deviation

Tolerable misstatement
A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of
assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the
population.

Tolerable rate of deviation

A rate of deviation from prescribed internal control procedures set by the auditor in respect of which the
auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not
exceeded by the actual rate of deviation in the population.

Performing Audit Procedures

- The auditor shall perform audit procedures, appropriate to the purpose, on each item selected.
- If a selected item is not appropriate for the application of the audit procedure, the audit procedure is
ordinarily performed on a replacement item.
- For example, a cancelled cheque may be selected when testing for evidence of payment
authorization. If the auditor is satisfied that the check had been properly cancelled such that it
does not constitute an error, an appropriately chosen replacement is examined.
- If the auditor is unable to apply the designed audit procedures, or suitable alternative procedures, to a
selected item, the auditor shall treat that item as a deviation from the prescribed control, in the case
of tests of controls, or a misstatement, in the case of tests of details.
- An example of a suitable alternative audit procedure might be the examination of subsequent
receipts when no reply has been received in response to a positive confirmation request.

Nature And Cause Of Deviations And Misstatements

The auditor shall

● investigate the nature and cause of any deviations or misstatements identified, and
● evaluate their possible effect on the purpose of the audit procedure and on other areas of the audit.

In analysing the deviations and misstatements identified,

● the auditor may observe that many have a common feature, for example, type of transaction, location,
product line or period of time.

In such circumstances, the auditor may decide to identify all items in the population that possess the
common feature, and extend audit procedures to those items. In addition, such deviations or misstatements
may be intentional, and may indicate the possibility of fraud.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 9

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

In the extremely rare circumstances when the auditor considers a misstatement or deviation discovered in a
sample to be an anomaly, the auditor shall obtain a high degree of certainty that such misstatement or
deviation is not representative of the population.

The auditor shall obtain a high degree of certainty by performing additional audit procedures to obtain
sufficient appropriate audit evidence that the misstatement or deviation does not affect the remainder of
the population.

Anomaly may be defined as a misstatement or deviation that is demonstrably not representative of

misstatements or deviations in a population. (one-off event)

Projecting Misstatements

The auditor is required to project misstatements for the population to obtain a broad view of the scale of
misstatement but this projection may not be sufficient to determine an amount to be recorded.

When a misstatement has been established as an anomaly, it may be excluded when projecting
misstatements to the population.

However, the effect of any such misstatement, if uncorrected, still needs to be considered in addition to the
projection of the non-anomalous misstatements.

For tests of details, the auditor shall project misstatements found in the sample to the population whereas
for tests of controls, no explicit projection of deviations is necessary since the sample deviation rate is also the
projected deviation rate for the population as a whole. (if there are 8% deviation in the sample, this will also become the rate of deviation in
the population)

Evaluating Results Of Audit Sampling

The auditor shall evaluate-

- The results of the sample; and

- Whether the use of audit sampling has provided a reasonable basis for conclusions about the
population that has been tested.

For tests of controls,

- an unexpectedly high sample deviation rate may lead
- to an increase in the assessed risk of material misstatement, unless further audit evidence substantiating the
initial assessment is obtained.

For tests of details, an unexpectedly high misstatement amount in a sample may cause the auditor to
believe that a class of transactions or account balance is materially misstated, in the absence of further audit evidence that
no material misstatement exists

In the case of tests of details, the projected misstatement plus anomalous misstatement, if any, is the
auditor’s best estimate of misstatement in the population.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 10

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

When the projected misstatement plus anomalous misstatement, if any, exceeds tolerable misstatement,
the sample does not provide a reasonable basis for conclusions about the population that has been tested.

The closer the projected misstatement plus anomalous misstatement is to tolerable misstatement, the more
likely that actual misstatement in the population may exceed tolerable misstatement.

Also if the projected misstatement is greater than the auditor’s expectations of misstatement used to
determine the sample size, the auditor may conclude that there is an unacceptable sampling risk that the
actual misstatement in the population exceeds the tolerable misstatement.

Considering the results of other audit procedures helps the auditor to assess the risk that actual
misstatement in the population exceeds tolerable misstatement, and the risk may be reduced if additional
audit evidence is obtained.

In case the auditor concludes that audit sampling has not provided a reasonable basis for conclusions about
the population that has been tested, the auditor may request management.

- to investigate misstatements that have been identified and the potential for further misstatements
and
- to make any necessary adjustments; or tailor the nature, timing and extent of those further audit
procedures to best achieve the required assurance.

For example, in the case of tests of controls, the auditor might

- extend the sample size,
- test an alternative control or
- modify related substantive procedures.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 11

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Sample Selection Methods

Some of the important methods of selecting the sample are discussed below -

Random Sampling
- Random selection ensures that all items in the population have a equal chance of selection.
- It may involve use of random number tables.
- Random sampling includes two very popular methods which are discussed below

Simple Random Sampling

- Under this method each unit of the whole population e.g. purchase or sales invoice has an equal
chance of being selected.
- Samples are selected through a random number table.
- Random number tables are simple and easy to use and also provide assurance that the auditors’ bias
does not affect the selection.
- Each item in a population is selected by use of a random number table either with the help of a
computer or picking up a number in a random way.

This method is considered appropriate provided the population to be sampled consists of reasonably similar
units and fall within a reasonable range i.e it is suitable for a homogeneous population having a similar range.
Example

The population can be considered homogeneous, if say, trade receivables balances fall within the range of ₹
50,000 to ₹ 2,00,000 and not in the range between ₹500 to ₹ 11,50,000.

Stratified Sampling

This method involves dividing the whole population to be tested in a few separate groups called strata and
taking a sample from each of them.

- Each stratum is treated as if it was a separate population and

- items are selected from each of these stratum.
- The number of groups into which the whole population has to be divided is determined on the basis
of auditor judgement.

Example

The population in the range between ₹500 to ₹ 11,50,000 say for trade receivables balances may be divided
into groups as follows:-

1. balances in excess of ₹ 10,00,000;

2. balances in the range of ₹ 7,75,001 to ₹ 10,00,000;
3. balances in the range of ₹ 5,50,001 to ₹ 7,75,000
4. balances in the range of ₹ 2,25,001 to ₹ 5,50,000; and
5. balances ₹ 2,25,000 and below.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 12

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

From these above groups the auditor may pick up different percentages of items from each of the group.
- From the top group i.e. balances in excess of ₹ 10,00,000, the auditor may examine all the items;
- from the second group 25 per cent of the items;
- from the third group 10 percent of the items; and
- from the lowest group 2 percent of the items may be selected.

Random sample is chosen from each stratum using random number tables.

The reasoning behind the stratified sampling is that for a highly diversified population, weights should be
allocated to reflect these differences.

It can be seen that the stratified sampling is simply an extension of simple random sampling.

Stratification means
- dividing a heterogeneous (Diversified) population
- into a Homogeneous (having similar characteristics) sub population,
- where samples are drawn from each subpopulation.

Interval Sampling or Systematic Sampling

- Systematic selection is a selection method in which the number of sampling units in the population is
divided by the sample size to give a sampling interval, for example 50,
- and having determined a starting point within the first 50,
- each 50th sampling unit thereafter is selected.

The starting point may be determined haphazardly, the sample is more likely to be truly random if it is
determined by use of a computerised random number generator or random number tables.

When using systematic selection, the auditor would need to determine that sampling units within the
population are not structured in such a way that the sampling interval corresponds with a particular pattern
in the population.

Example

If in a population of branch sales, particular branch sales occur only as every 50th item and the sampling interval selected is also 50. The
result would be that either the auditor would have selected all or none of the sales of that particular branch.

Therefore, systematic sampling when chosen as a method should be carefully applied to bring together
every type of transaction within its purview. More than one starting point can be considered to minimise
such risk.

Monetary Unit Sampling

It is a type of
- value-weighted selection in which
- sample size,
- selection and

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 13

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

- evaluation results in a conclusion in monetary amounts.

In this individual monetary units are identified as sampling units.

Value-Weighted Selection

Values are given weight.

This selection is done in such a way that high value items for example invoice have high chance of selection.

Having selected specific monetary units from within the population, for example, the accounts receivable
balance, the auditor may then examine the particular items, for example, individual balances, that contain
those monetary units.

One benefit of this approach is that audit effort is directed to the larger value items because they have a
greater chance of selection, and can result in smaller sample sizes.

This approach may be used in conjunction with the systematic method of sample selection and is most
efficient when selecting items using random selection.

Haphazard sampling

Haphazard selection, in which the

- auditor selects the sample
- without following a structured technique.

The auditor should try to avoid any conscious bias or predictability (for example, avoiding difficult to locate
items, or always choosing or avoiding the first or last entries on a page) and thus attempt to ensure that all
items in the population have a chance of selection.

Haphazard selection is not appropriate when using statistical sampling.

Haphazard sampling has

- no structured approach,
- does not involve judgement and
- does not even use the random number tables.

Block Sampling
- This method involves
- selection of a block(s) of
- Contiguous (in sequence) items from within the population.

Block selection cannot ordinarily be used in audit sampling because most populations are structured such
that items in a sequence can be expected to have similar characteristics to each other, but different
characteristics from items elsewhere in the population.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 14

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Although in some circumstances it may be an appropriate audit procedure to examine a block of items, it
would rarely be an appropriate sample selection technique when the auditor intends to draw conclusion
about the entire population based on the sample.

If the client has the idea of the block selection pattern of the auditor, then material misstatements and
deviations can be easily manipulated by management’s practice of recording them.

Example

Take the first 100 sales invoices from the sales day book in the month of September; alternatively take any
four blocks of 25 sales invoices.

Therefore, once the first item in the block is selected, the rest of the block follows items to the completion.

There is a close similarity between this method and non-statistical sampling. Consequently it has similar characteristics, namely,
simplicity and economy. On the other hand there is a risk of bias and of establishing a pattern of selection which may be noted by the
auditees.

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 15

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

APPROACHES TO SAMPLING

1. Non-statistical or
2. Statistical sampling approaches.

Statistical Sampling

Probability Theory
Statistical sampling is an approach to sampling that has the
- random selection of the sample units;
- and the use of probability theory
- in determining the appropriate sample size
- In Sample selection
- to evaluate sample results,
- including measurement of sampling risk characteristics.

Mathematical and statistical methods

Sample is chosen by applying certain mathematical and statistical methods.

More Scientific
Statistical Sampling- More Scientific

Probability theory, a branch of mathematics concerned with the analysis of random phenomena. The outcome of a random event cannot be determined before it occurs, but
it may be any one of several possible outcomes. The actual outcome is considered to be determined by chance. (https://www.britannica.com/science/probability-theory)

Large number of similar items

Widely used where a population to be tested consists of a large number of similar items and more in the
case of transactions involving compliance testing, trade receivables’ confirmation, payroll checking, vouching
of invoices and petty cash vouchers.

No personal bias
There Is no personal bias of the auditor in the case of statistical sampling.

Projection more reliable

Since it is scientific, the results of the sample can be evaluated and projected on the whole population in a
more reliable manner.

For Example: An auditor while verifying the Purchases during the year realised that the purchase
transactions in that year are more than 95000 in number, then in such case, statistical sampling will be
highly recommended in the audit program.

Advantages of Statistical Sampling

1. The amount of testing (sample size) does not increase in proportion to the increase in the size of the area
(universe) tested. (Smaller sample size gives a better representation of the population, in judgemental or non
statistical sampling sample size is large still it does not give a fair representation of the population )

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 16

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

2. The sample selection is more objective and thereby more defensible.

3. The method provides a means of estimating the
● minimum sample size associated with a specified risk. (Basically helps in determining the sample size
depending upon audit risk)
4. It provides a means for deriving a “calculated risk” (sampling error) i.e. the probable difference in result due to the
use of a sample in lieu of examining all the records in the group (universe), using the same audit procedures.
5. It may provide a better description of a large mass of data when compared to a non-statistical approach of
sampling.
6. Results of sampling can be evaluated and projected in a better way

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 17

Join Us on Telegram https://t.me/neerajaroraclasses
These notes are incomplete without our videos. We keep on updating our books, notes and videos. You should always study from updated notes with our videos. To get
the most out of these notes please study from our audit classes and attend our mock tests. Visit www.edu91.org

Non-Statistical Sampling

The sample size and its composition are determined on the basis of the
- personal experience and
- knowledge of the auditor.

Does not have any of the characteristics of random selection and use of probability theory.

This approach is simple. The sample may not be a true representative of the total population because of
personal bias and no scientific method of selection.

For example,
- April, August and March may be selected in year one and different months would be selected in the
next year,
- On the basis of the value of items, The top 10 highest values. Etc.

● An attempt would be made to avoid establishing a pattern of selection year after year.
● An element of surprise is maintained.
● It is a common practice to check large numbers of items towards the close of the year so that the
adequacy of cut-off procedures can also be determined.
● Also, because year end transactions are prone to high risk of misappropriation.

The non-statistical sampling is criticised on the grounds that it is neither objective nor scientific.

- Expected degree of objectivity cannot be assured in nonstatistical sampling

- because the risk of personal bias in selection of sample items cannot be eliminated.

Projection may not be as accurate as it was in statistical sampling because the sample has not been selected
in accordance with the mathematically based statistical techniques.

The auditor with his experience and knowledge of the client’s business can evaluate the sample findings to
make audit decisions without the mathematical proof of accuracy.

Misc Topic
Factors that should be considered for deciding upon the extent of checking on a
sampling plan

The factors that should be considered for deciding upon the extent of checking on a sampling plan are following:

1. Size of the organisation under audit.

2. State of the internal control.
3. Adequacy and reliability of books and records.
4. Tolerable error range.
5. Degree of the desired confidence.

Sampling Vs Traditional method of Auditing (Homework Do it from ICAI Study Mat)

Join Us on YouTube www.youtube.com/neerajarora Chapter 7 | 18

Join Us on Telegram https://t.me/neerajaroraclasses