This document discusses different sampling methods used in internal auditing, including judgmental, haphazard, and statistical sampling. Judgmental sampling involves using an auditor's experience and knowledge to select a biased sample. Haphazard sampling selects items randomly without a defined statistical formula. Statistical sampling uses a computer to randomly or systematically select a predetermined sample size based on confidence levels in order to make reliable conclusions about a population.
Judgment, haphazard and statistical sampling for interanl auditing
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
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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.
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