In determining the sample size, the auditor should consider whether sampling risk is reduced to an acceptably low level. Sample size is affected by the level of sampling risk that the auditor is willing to accept. The lower the acceptable risk, the greater the sample size will need to be. Examples of some factors affecting sample sizes, taken from the ISA, are shown in Tables 1 and
2. TABLE 1: Some factors influencing sample size for substantive tests Factor Impact on sample size Inherent risk1 The higher the assessment of inherent risk, the more audit evidence is required to support the auditor’s conclusion. Control risk2
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A population will have a risk of material misstatement as assessed by the auditor at the planning stage. The level of risk of material misstatement will have a direct bearing on the sample size used. Where there is a higher risk of material misstatement, the number of items tested from the population will be greater than in situations where the risk of material misstatement has been assessed as at the lower end of the spectrum. A
higher sample size will result in lower sampling risk, increasing the auditor’s confidence levels that the population does not contain a material misstatement. Other factors will also affect sample sizes. To subscribe to this content, simply call 0800 231 5199 We can create a package that’s catered to your individual needs. Or
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(Ref: Para. A11)
The following are factors that the auditor may consider when determining the sample size for tests of details. These factors, which need to be considered together, assume the auditor does not modify the approach to tests of controls or otherwise modify the nature or timing of substantive procedures in response to the assessed risks.
FACTOR | EFFECT ON SAMPLE SIZE | |
1. An increase in the auditor’s assessment of the risk of material misstatement | Increase | The higher the auditor’s assessment of the risk of material misstatement, the larger the sample size needs to be. The auditor’s assessment of the risk of material misstatement is affected by inherent risk and control risk. For example, if the auditor does not perform tests of controls, the auditor’s risk assessment cannot be reduced for the effective operation of internal controls with respect to the particular assertion. Therefore, in order to reduce audit risk to an acceptably low level, the auditor needs a low detection risk and will rely more on substantive procedures. The more audit evidence that is obtained from tests of details (that is, the lower the detection risk), the larger the sample size will need to be. |
2. An increase in the use of other substantive procedures directed at the same assertion | Decrease | The more the auditor is relying on other substantive procedures (tests of details or substantive analytical procedures) to reduce to an acceptable level the detection risk regarding a particular population, the less assurance the auditor will require from sampling and, therefore, the smaller the sample size can be. |
3. An increase in the auditor’s desired level of assurance that tolerable misstatement is not exceeded by actual misstatement in the population | Increase | The greater the level of assurance that the auditor requires that the results of the sample are in fact indicative of the actual amount of misstatement in the population, the larger the sample size needs to be. |
4. An increase in tolerable misstatement | Decrease | The lower the tolerable misstatement, the larger the sample size needs to be. |
5. An increase in the amount of misstatement the auditor expects to find in the population | Increase | The greater the amount of misstatement the auditor expects to find in the population, the larger the sample size needs to be in order to make a reasonable estimate of the actual amount of misstatement in the population. Factors relevant to the auditor’s consideration of the expected misstatement amount include the extent to which item values are determined subjectively, the results of risk assessment procedures, the results of tests of control, the results of audit procedures applied in prior periods, and the results of other substantive procedures. |
6. Stratification of the population when appropriate | Decrease | When there is a wide range (variability) in the monetary size of items in the population, it may be useful to stratify the population. When a population can be appropriately stratified, the aggregate of the sample sizes from the strata generally will be less than the sample size that would have been required to attain a given level of sampling risk, had one sample been drawn from the whole population. |
7. The number of sampling units in the population | Negligible effect | For large populations, the actual size of the population has little, if any, effect on sample size. Thus, for small populations, audit sampling is often not as efficient as alternative means of obtaining sufficient appropriate audit evidence. (However, when using monetary unit sampling, an increase in the monetary value of the population increases sample size, unless this is offset by a proportional increase in materiality for the financial report as a whole [and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures]). |