FACTORS IN DETERMINING SAMPLE SIZE- SAMPLING RISK
(1) When determining the sample size, the auditor should consider sampling risk, the tolerable error, and the
expected error.
(2) Sampling risk arises from the possibility that the auditor conclusion, based on a sample, may be different
from the conclusion that would be reached if the entire population were subjected to the same audit procedure.
(3) The auditor is faced with sampling risk in both tests of control and substantive procedure as follow:
(a) Tests of control:
(I) Risk of under reliance: The risk that, although the sample result does not support the auditor’s assessment of control risk, the actual compliance rate would support such an assessment.
(II) Risk of over reliance: The risk that, although the sample result supports the auditor’s assessment of control risk, the actual compliance rate would not support such as an assessment.
(b) Substantive procedures:
(I) Risk of incorrect rejection: The risk that, although the sample results the supports the conclusion that a recorded account balance or class of transactions is materially misstated, in fact it is not materially misstated.
(II) Risk of incorrect acceptance: The risk that, although the sample result supports the conclusion that a recorded account balance or class or transactions is not materially misstated.
(4) The risk of under reliance and the risk of incorrect rejection affect audit efficiency as they would ordinarily lead to additional work being performed by the auditor, or the entity, which would establish that the initial conclusions were incorrect. The risk of over reliance and the risk of incorrect acceptance affect audit effectiveness and are more likely to lead to an erroneous opinion on the financial statements than either the risk of under reliance or the risk of incorrect rejection.
(5) Sample size is affected by the level of sampling risk the auditor is willing to accept from the results of the sample. The lower the risk the auditor is willing to accept, the greater the sample size will need to be.