Auditing & Assurance Presentation
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Auditing & Assurance Standard 15 provides guidance on audit sampling for auditors. It establishes that auditors can use statistical or non-statistical sampling methods to evaluate a sample of items from a population to obtain sufficient audit evidence rather than examining all items. The standard provides guidance on designing an audit sample, including considering the audit objectives, population, stratification, sample size, tolerable error, and sampling risk. It also provides guidance on selecting the sample randomly, systematically, or haphazardly and evaluating the results.
Auditing & Assurance Presentation
- 1. Auditing & Assurance Standards 2 & 15
- 2. AAS 2- Objective and scope of audit of financial statements Describes the overall scope & objective of audit by an independent auditor. The objective is to express an opinion on financial statements. The auditor’s opinion helps in determination of “true and fair view” of financial position & operating results of an organisation. Effective date – audits relating to accounting periods after 1-4-1985.
- 3. Scope of an Audit Will be determined by terms of engagement, requirements of statute and ICAI’s pronouncements. Assessing the reliability & sufficiency of underlying accounting records. Determination of whether relevant info is properly disclosed by : - Comparing financial statements with underlying records. - Judgements ,estimates,consistent application of policies,adequacy of disclosure.
- 4. Exercise of judgement – deciding extent of audit procedures and drawing conclusions from audit evidence. Conducting audit procedures, substantive and compliance tests. Judgement on materiality and disclosure of material items in financial statements. Not expected to perform duties outside the scope of his competence. Constraints on the scope of audit should be expressed.
- 5. AAS 15-Audit Sampling Purpose- establish standards on the design & selection of audit samples & evaluation. The auditor can use either statistical or non-statistical sampling methods to evaluate sample results to provide sufficient audit evidence. Audit sampling means the application of audit procedures to less than 100% of items within a class of transactions.
- 6. Design of the sample : When designing the audit sample,the auditor should consider the specific audit objectives,the population & sample size. Population : It refers to the entire set of data from which the auditor wishes to sample. The individual items making up the population are known as sampling units.Division into units can be done in many ways.
- 7. Stratification Stratification : Process of dividing the population into sub-populations,which have similar characteristics. Strata need to be defined in order that each sampling unit can belong to only one stratum. It enables the auditor to direct efforts towards items which contain, for eg, the greatest potential monetary error.
- 8. Sampling risk While determining sample size, the auditor should consider sampling risk,tolerable error and expected error. It arises from the possibility that the auditor’s conclusion based on a sample may be different if the whole population had been considered. The auditor is faced with sampling risk in both compliance and substantive procedures. Sample size is affected by the level of sampling risk the auditor is willing to accept.
- 9. Tests of control: Risk of under reliance Risk of over reliance Substantive procedures: Risk of incorrect rejection Risk of incorrect acceptance
- 10. Tolerable error Maximum error in the population that the auditor would be willing to accept & still conclude that the sample has achieved audit objective. The smaller the tolerable error,the greater the sample size.
- 11. Selection of the Sample The sample should be selected such that it is expected to be representative of the population. Random selection Systematic selection Haphazard selection
- 12. Evaluation of Sample Results Having carried out audit procedures on the sample,the auditor should: Analyse errors detected in the sample Project errors found in the sample to the population Reassess sampling risk