Hanrick Curran Audit Training - Sampling for Audit Evidence - June 2013


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Training in audit sampling and requirements of IAS 530 / ASA 530. Delivered in a 90 minute session with time for discussion and questions.

Hanrick Curran Audit Training - Sampling for Audit Evidence - June 2013

  1. 1. Sampling for Audit Evidence(ASA 530 / ISA 530)June 2013
  2. 2. Objectives for today• A look at the requirements for audit evidence (ASA 500 / ISA 500)• An overview of different types of audit sampling• Building a conceptual framework for determining sample sizes• Using the CaseWare workpapersAudit Training - Sampling - June 2013
  3. 3. Today’s presenters– Matthew Green CAContact details: matthew.green@hanrickcurran.com.au0447 724 595(07) 3218 3900Twitter: @matthewjgreencaLinkedIn: http://au.linkedin.com/in/matthewjgreencaWeb: www.hanrickcurran.com.auAudit Training - Sampling - June 2013
  4. 4. AUDIT RISKThe Fundamental Basis of Australian Auditing StandardsSource for this section: GAAP Consulting
  5. 5. Overview of the audit risk model Audit risk is the risk that the auditor will give an inappropriateaudit opinion when the financial report is materiallymisstated. Before issuing an opinion on the financialreport, the auditor needs to reduce audit risk to an acceptablelevel to ensure the opinion is reliable.Audit Training - Sampling - June 2013
  6. 6. Reducing audit risk An auditor reduces audit risk by performing audit proceduresuntil there is sufficient appropriate evidence for each assertionof each significant transaction class or account balance toprovide reasonable assurance that the financial reports arenot materially misstated The audit risk model focuses audit effort on those classes oftransactions or balances (and the particular assertions) thatare likely to contain material misstatementsAudit Training - Sampling - June 2013
  7. 7. Components of audit risk (AR)Inherent risk (IR):– Susceptibility of an assertion to materialmisstatement BEFORE consideration of relatedcontrolsControl risk (CR):– Risk that material misstatement might not beprevented or detected and corrected by internalcontrol proceduresDetection risk (DR):– Risk that auditors’ procedures will not detect amaterial misstatementAudit Training - Sampling - June 2013
  8. 8. Audit RiskIRCRDRClient controlled risksAuditor controlled risksAudit Training - Sampling - June 2013
  9. 9. Audit RiskAudit Training - Sampling - June 2013
  10. 10. Remember the formula?IR x CR x DR = ARorLikelihood x Impact = IR x CR = RRRR x DR = ARAudit Training - Sampling - June 2013
  11. 11. Another way to look at itAudit Training - Sampling - June 2013
  12. 12. ICAA Audit Manual on Risk AssessmentReview Chapter 29.3 of the audit manual . . .Note the risk assessment commentsand table on pp. 456 & 457!Audit Training - Sampling - June 2013
  13. 13. AUDIT EVIDENCEUnderstanding the requirements of ASA 500
  14. 14. ASA 500 – Requirements for audit evidence4. The objective of the auditor is to design and perform auditprocedures in such a way as to enable the auditor to obtainsufficient appropriate audit evidence to be able to drawreasonable conclusions on which to base the auditor’sopinion.Audit Training - Sampling - June 2013
  15. 15. ASA 500 – Requirements for audit evidence5(b). Appropriateness means the measure of the quality ofaudit evidence; that is, its relevance and its reliability inproviding support for the conclusions on which theauditor’s opinion is based.5(e) Sufficiency means the measure of the quantity of auditevidence. The quantity of the audit evidence is affectedby the auditor’s assessment of the risks of materialmisstatement and also by the quality of such auditevidence.Audit Training - Sampling - June 2013
  16. 16. ASA 500 – Requirements for audit evidence9. When using information produced by the entity, theauditor shall evaluate whether the information issufficiently reliable for the auditor’s purposes, includingas necessary in the circumstances:(a) Obtaining audit evidence about the accuracy andcompleteness of the information; and(b) Evaluating whether the information is sufficientlyprecise and detailed for the auditor’s purposes.“ASIC’s Top 10 issues for auditors includesa failure to apply professional scepticismand document work. Audit Training - Sampling - June 2013
  17. 17. ASA 500 – Requirements for audit evidence11. if:(a) audit evidence obtained from one source isinconsistent with that obtained from another; or(b) the auditor has doubts over the reliability ofinformation to be used as audit evidence,the auditor shall determine what modifications oradditional to audit procedures are necessary to resolvethe matter, and shall consider the effect of the matter, ifany, on other aspects of the audit.Audit Training - Sampling - June 2013
  18. 18. ASA 500 – Requirements for audit evidenceA2. … procedures to obtain audit evidence can include Inspection Observation Confirmation Re-calculation Re-performance Analytical procedures EnquiryAudit Training - Sampling - June 2013
  19. 19. ASA 500 – Requirements for audit evidenceA52. … The means available to the auditor for selecting itemsfor testing are:(a) selecting all items (100% testing)(b) selecting specific items(c) audit samplingTestingAll itemsSpecific itemsSamplingAudit Training - Sampling - June 2013
  20. 20. AUDIT SAMPLINGUnderstanding the requirements of ASA 530
  21. 21. ASA 530 – Requirements for audit sampling5(a). Audit sampling means the application of audit proceduresto less than 100% of items within a population of auditrelevance such that all sampling units have a chance ofselection in order to provide the auditor with a reasonablebasis on which to draw conclusions about the entirepopulation.5(b) Population means the entire set of data from which asample is selected and about which the auditor wishes todraw conclusions.Audit Training - Sampling - June 2013
  22. 22. ASA 530 – Requirements for audit sampling5(c). Sampling risk means the risk that the auditor’sconclusions based on a sample may be different from theconclusion if the entire population were subjected to thesame audit procedure.5(d) Non-sampling risk means the risk that the auditorreaches an erroneous conclusion for any reason notrelated to sampling risk.Audit Training - Sampling - June 2013
  23. 23. ASA 530 – Requirements for audit sampling5(e). Anomaly means a misstatement or deviation that isdemonstrably not representative of misstatements ordeviations in a population.Audit Training - Sampling - June 2013
  24. 24. ASA 530 – Requirements for audit sampling5(g). Statistical sampling means an approach to sampling thathas the following characteristics:(i) Random selection of sample items; and(ii) The use of probability theory to evaluate sampleresults, including measurement of sampling risks.A sampling approach that does not have characteristics(i) and (ii) is considered non-statistical sampling.Audit Training - Sampling - June 2013
  25. 25. ASA 530 – Requirements for audit sampling5(i). Tolerable misstatement means a monetary amount set bythe auditor in respect of which the auditor seeks to obtainan appropriate level of assurance that the monetaryamount set by the auditor is not exceeded by the actualmisstatement in the population.“Typically this would be the amount determinedas materiality, specifically the performancemateriality, or a lower amount.Audit Training - Sampling - June 2013
  26. 26. ASA 530 – Requirements for audit sampling12. The auditor shall investigate the nature and cause of anydeviations or misstatements identified, and evaluate theirpossible effect on the purpose of the audit procedure and onother areas of the audit13. In the extremely rare circumstances when the auditor considersa misstatement or deviation discovered in a sample to be ananomaly, the auditor shall obtain a high degree of certainty thatsuch misstatement or deviation is not representative of thepopulation. The auditor shall obtain this degree of certainty byperforming additional audit procedures to obtain sufficientappropriate evidence that the misstatement or deviation doesnot affect the remainder of the population.Audit Training - Sampling - June 2013
  27. 27. Sample selection methods (ASA 530.App 4)(a) Random selection (applied through random numbergenerators or random number tables)Audit Training - Sampling - June 2013
  28. 28. Sample selection methods (ASA 530.App 4)(b) Systematic selection, in which the number of sampling unitsin the population is divided by the sample size to give asampling interval, for example 50, and having determined astarting point within the first 50, each 50th sampling unitthereafter is selected. Although the starting point may bedetermined haphazardly, the sample is more likely to be trulyrandom if it is determined by use of a computerised randomnumber generator or random number tables. When usingsystematic selection, the auditor would need to determine thatsampling units within the population are not structured in sucha way that the sampling interval corresponds with a particularpattern in the population.Audit Training - Sampling - June 2013
  29. 29. Sample selection methods (ASA 530.App 4)(c) Monetary Unit Sampling is a type of value-weighted selection(as described in Appendix 1) in which sample size, selection andevaluation results in a conclusion in monetary amounts.“Also known as Dollar Unit Sampling (DUS) orConstant Monetary Amount (CMA) sampling.Audit Training - Sampling - June 2013
  30. 30. Sample selection methods (ASA 530.App 4)(d) Haphazard selection, in which the auditor selects the samplewithout following a structured technique. Although nostructured technique is used, the auditor would nonethelessavoid any conscious bias or predictability (for example, avoidingdifficult to locate items, or always choosing or avoiding the firstor last entries on a page) and thus attempt to ensure that allitems in the population have a chance of selection. Haphazardselection is not appropriate when using statistical sampling.Audit Training - Sampling - June 2013
  31. 31. Sample selection methods (ASA 530.App 4)(e) Block selection involves selection of a block(s) of contiguousitems from within the population. Block selection cannotordinarily be used in audit sampling because most populationsare structured such that items in a sequence can be expected tohave similar characteristics to each other, but differentcharacteristics from items elsewhere in the population. Althoughin some circumstances it may be an appropriate audit procedureto examine a block of items, it would rarely be an appropriatesample selection technique when the auditor intends to drawvalid inferences about the entire population based on thesample.Audit Training - Sampling - June 2013
  32. 32. DETERMINING A SAMPLESIZEUsing the ICAA Audit Manual
  33. 33. Using a confidence factorSampling can be completed by using a confidence factor to helpset the sample size. Confidence factors are described in theICAA Australian Audit Manual (p.497)Audit Training - Sampling - June 2013
  34. 34. Determine a selection intervalAudit Training - Sampling - June 2013
  35. 35. Determine a sample sizeAudit Training - Sampling - June 2013
  36. 36. Determine a sample sizeUsing CaseWare’s template:Audit Training - Sampling - June 2013
  37. 37. Determine a sample sizeAudit Training - Sampling - June 2013
  38. 38. How do I select a confidence factor?“professionaljudgement.Audit Training - Sampling - June 2013
  39. 39. Lets discuss some practical questions?Need more information, see the ICAA Aust. Audit Manual:- Chapter 29- Chapter 31- Chapter 32Audit Training - Sampling - June 2013
  40. 40. About Hanrick CurranOur client base is mainly located in South East Queensland, but alsoextends to Northern New South Wales, Western Queensland, Sydney,Melbourne, Darwin, Townsville and Mackay as well as other regionalareas.Hanrick Curran are a member firm of the international Alliott Group,which is a worldwide alliance of independent firms that combine to workon engagements and who refer work where local knowledge is arequirement.Hanrick Curran’s Client Base
  41. 41. This document contains information in summary form and is therefore intendedfor general guidance only. It is not intended to be a substitute for detailedresearch or the exercise of professional judgement. It does not purport to becomprehensive or to render professional advice. The reader should not act onthe basis of any matter contained in this publication without first obtainingspecific professional advice.We believe that the statements made by us in this document are accurate but nowarranty of accuracy or reliability is given. Our conclusions are based oninterpretations of accounting standards and other relevant professionalpronouncements and legislation current as at the date of this document. Shouldthe interpretations, accounting standards, other relevant professionalpronouncements or legislation change, our conclusions may not be valid. We areunder no obligation to update the matters considered in this document after itspublication.© Hanrick Curran, June 2013All rights reservedDisclaimerLiability limited by a scheme approved underprofessional Standards Legislation
  42. 42. Thank youwww.hanrickcurran.com.auHanrick Currant. (07) 3218 3900f. (07) 3218 3901Level 11307 Queen StreetBrisbane Qld 4000GPO Box 2268Brisbane Qld 4001