JUDGMENT, HAPHAZARD AND STATISTICAL SAMPLING FOR INTERANL
AUDITING
Summary: When using systematic sampling, you have to be...
HAPHAZARD: sampling this allows the selection of items at random but is not based on
any Defined statistical formula. The ...
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Judgment, haphazard and statistical sampling for interanl auditing

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Judgment, haphazard and statistical sampling for interanl auditing

  1. 1. JUDGMENT, HAPHAZARD AND STATISTICAL SAMPLING FOR INTERANL AUDITING Summary: When using systematic sampling, you have to be careful to ensure that there is not bias in the population, or that your sampling interval does not introduce bias in the audit sample. For example, imagine you were selecting a sample of stock locations, and the warehouse was laid out so that all the even locations were on one side of the aisle and all the odd locations on the other. Most of the time the auditor will not sample. The auditor will either perform inquiry and observation, analytical methods, test every item in the population, or test no items. Recall that sampling entails quite a bit of time and effort to design and select the sample and then evaluate the results The choices faced by auditors concerning which sampling method to use are shown in the illustration below. The important thing for the student to note is that it is more important to understand the concepts underlying the use of particular methods than it is to spend a lot of time learning sophisticated sampling methods that will never be used. Audits are internal or external. Internal audits are an informal review for business owners and managers. External audits provide information to outside individuals about the company's financial health. Audits are unable to review a company's entire information. Therefore, auditors use sampling procedures to select information for the audit. Therefore systematic sampling is most appropriate when looking over a period of time, as it ensures an even spread of items being selected in the audit sample over the period under review What is sampling? Sampling occurs when an audit reviews less than 100% of a population in order to reach a conclusion concerning the population. The act of attributing the qualities of the sample to the population is known as extrapolation. Why sample? Auditors sample because the benefits of sampling (reduced number of items tested) exceed the costs of sampling (slightly more risk of reaching a false conclusion, and additional time designing and selecting sample). JUDGMENT: Experienced auditors often select samples based on personal judgment and experience. Judgment sampling takes into account the value of the information and the amount of risk when selecting a representative group of financial transactions. Information value sampling requires auditors to select financial accounts with numerous transactions relating to important financial transactions, the sample is purposely biased by the auditor to take on board matters that the auditor is aware of. For example, we may be concerned about our ordering system where an individual who left some months ago was known to be medically unwell and made known errors. We may look at orders he processed and skew the sample 1
  2. 2. HAPHAZARD: sampling this allows the selection of items at random but is not based on any Defined statistical formula. The audit sample must also be representative of the population for the results to be valid, and this is often dependant on the sampling method chosen. For example, in the above scenario, if the auditor is left to select customers at random (haphazard sampling) they may be inclined to approach more attractive customers, who may also receive preferential treatment from staff based on their physical appearance. In this case a different method of selecting the audit sample would be more appropriate, for example approaching every 10th customer, STATISTICAL: sampling the auditor has to define the population and set confidence levels. A predetermined sample size will be provided and one may indicate how reliable and accurate the results are. Statistical sampling procedures often involve the use of a computer to select information. Procedures include random, interval and cluster sampling. Random sampling involves selecting items out of a list or group. Computer programs will select items with no rhyme or reason for the audit sample. Interval sampling involves selecting audit items in a uniform manner. Computer programs will select an item after skipping so many in a series. Cluster sampling separates a company's information into groups or "clusters." Clusters will include a large group of information, which auditors can test for accuracy and validity. ADDITIONAL SAMPLING TECHNIQUES There are two main aspects to statistical sampling. One is how the number of items to be examined is defined-The other relates to the methods used to extract the required information. The latter is called the sampling method or selection technique. Methods used to define numbers tested are called sampling plans. This section deals with sampling methods and these may be set out as. Conclusion: Those three methods exist for performing statistical attribute testing. The most convenient is sequential sampling. In performing this method, the auditor selects an initial sample and then analyzes the results. If the auditor is satisfied with the results then the auditor can stop and reach a conclusion. 2

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