Does the auditor check every document or take a sample?
Thousands of invoices cannot be examined one by one. How the auditor carries out sampling and why its results can be trusted.
A large company produces tens of thousands of documents a year. If the auditor read every one of them, the audit would drag on for years. That is why the auditor checks a sample, not at random, but according to a clear rule.
How does sampling work?
- The population is defined. For example, all purchase invoices for the year.
- Large and unusual amounts are often checked in full. The auditor decides which documents to examine individually using professional judgement.
- A sample is taken from the rest. Using a random or systematic (every Nth document) method.
- The sample size depends on risk. If internal control is weak, more documents are taken.
- Errors found are projected to the whole population. If the sample contains errors, the auditor estimates how many errors there may be in the whole population.
- The result is documented. Which documents were selected and why is recorded in the working papers.
Example: how did Kamola check 1 200 invoices?
The auditor Kamola found that a trading firm had 1 200 purchase invoices for the year. She checked in full the 15 whose amounts exceeded the set threshold. From the rest, she selected 40 at random. In two documents, the purchase turned out to have been recorded in a different month. Kamola estimated how large this error could be across the whole population and, seeing that the result was not material, recommended that management make a correction.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
To verify the balance a customer owes the company, the auditor sends a request to the customer and receives the reply directly. What is this audit procedure called?
During tests of details, the auditor found misstatements in the documents selected for the sample. Under ISA 530, what does the auditor do with these misstatements?
In the audit of "Dilkusho savdo" LLC, the auditor wants to check that revenue is recorded completely, i.e. that no shipment has dropped out of the books. Which direction of testing suits this aim best?
The auditor's report was signed on 1 March 2027. According to the application material of ISA 230 (audit documentation), what is usually an appropriate time limit for completing the assembly of the final audit file?
Which document establishes the procedure for recognising and applying International Standards on Auditing?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- International Standards on Auditing (ISA 530 "Audit Sampling") · the concept of sampling and the principle of projecting the result to the whole population
- Example · prepared by the author