STATISTICAL SAMPLING IN AUDIT :

Statistical sampling involves the random selection of a number of items for inspection and is endorsed by the
accountancy bodies. In statistical sampling, each item has a calculable chance of being selected.

A commonly held misconception about statistical sampling is that it removes the need for the use of the professional judgement. While it is true that statistical sampling uses statistical methods to determine the sample size and to select and evaluate audit samples, it is the responsibility of the auditor to consider and specify in advance factors such as, materiality, the expected error rate or amount, the risk of over-reliance or the risk of incorrect acceptance, audit risk, inherent risk, control risk, standard deviation and population size, before the sample size can be determined.

Statistical sampling allows an auditor’s judgement to be concentrated on those areas of the audit where it is most needed. It allows the quantification of key factors and the risk of errors. This is not to suggest that statistical sampling methods remove the need for professional judgement, but rather that they allow elements of the evaluation process to be quantified, measured and controlled.

The advantages of statistical sampling are numerous:

1. The sample result is objective and defensible. Nearly all phases of the statistical process are based on demonstrable statistical principles.

2. The method provides a means of advance estimation of sample size on an objective basis. The sample size is no longer determined by traditional methods of guesswork; it is determined by a statistical method.

3. The method provides an estimate of error. When probability sampling is used, the results may be validated in terms of how far the sample projection might deviate from the value that could be obtained by a 100% check.

4. Statistical samples may be combined and evaluated, even though accomplished by different auditors. That the entire test operation has an objective and scientific basis makes it possible for different auditors to participate independently in the same test and for the results to be combined as though accomplished by one auditor.

5. Objective evaluation of test results is possible. Thus, all auditors performing this audit would be able to reach the same conclusion about the numerical extent of error in the population. While the impact of these errors might be interpreted differently, there can be no question as to the facts obtained, since the method of determining their frequency in the population is objective.