1. Learning Objectives LO1 Explain the role of professional judgment in audit sampling decisions. LO2 Distinguish audit sampling work from nonsampling work. LO3 Compare and contrast statistical and nonstatistical sampling. LO4 Differentiate between beta risk, alpha risk, sampling and nonsampling risk. 1

2. Introduction to Audit Sampling Audit sampling is:  The application of an audit procedure to less than 100 percent of the items within an account balance population or class of transactions.  For the purpose of evaluating some characteristic of the balance or class. LO1 2

3. Define Terms Audit procedure:  The general audit techniques such as computation, observation, confirmation, enquiry, inspection, and analysis. Account balance:  A control account made up of many constituent items. LO1 3

4. Define Terms Class of transactions:  A group of transactions having common characteristics such as cash receipts. Population:  The set of all elements that constitute an account balance or class of transactions. Population unit:  Each of the elements in a population. LO1 4

5. Define Terms Sampling unit:  A population unit that is selected in the audit sample.  It may be a customer’s account, an inventory item, a debt issue, a cash receipt, or a cancelled cheque. Sample:  A set of sampling units. LO1 5

6. Risk and Materiality Risk and materiality form the basis for determining the extent of procedures to be undertaken.  Materiality is related to sampling precision  Risk is related to confidence from sampling  Sampling will allow us to determine a balance ± an amount with a given % confidence.  E.g. $200,000 ± $10,000, with 95% confidence. LO1 6

7. Sampling and the Extent of Auditing Three aspects of audit procedures are important:  Nature  The general technique to be used (computation, observation, confirmation…).  Extent  The amount of work done when the procedures are performed.  Sampling is concerned primarily with extent.  Timing  The point in the audit at which the procedures are to be performed. LO1 7

8. Kinds of Audit Programs Internal control programs obtain evidence about control objectives.  Usually sample a class of transactions. Balance audit programs obtain evidence about financial statement assertions.  Usually sample an asset or liability balance. LO1 8