Standard on Internal Audit (SIA) 5: Sampling in Internal Audit
The Fifth Standard on Internal Audit states the process of sampling and its uses during the conduction of the Internal Audit Service. The following key points must be understood for the same-
- Introduction
- Definitions
- Use of Sampling in Risk Assessment Procedures and Tests of Controls
- Design of the Sample
- Sample Size
- Statistical and Non-Statistical Approaches
- Selection of the Sample
- Evaluation of Sample Results
- Documentation
To understand Sampling in Internal Audit, it is required that the above mentioned points must be evaluated and discussed thoroughly. The upcoming section provides and in depth knowledge about the same.
Introduction:
The main purpose of establishing this standard is for designing and selecting an audit sample and to provide proper guidance about the usage of the sampling in Internal Audit.
Definition of Sampling:
The SIA defines the following when the term sampling is evaluated or properly defined-
- Methods and samples used for Sampling in Internal Audit
- Errors if any
- Population
- Sampling Risk that may occur
- Sampling Unit
- Statistical Sampling
- Tolerable Errors
Use of sampling in Risk Assessment and tests of control:
Sampling in Internal Assessment are used for the following purposes-
- For obtaining and understanding about the organization, its operations and environment.
- To get a deeper a knowledge about the entity’s internal control methods.
- To reduce the risks, the size of sample for both the control tests and details test can be increased.
- The test control sampling is appropriate in cases where the application of such controls leave evidences about the performance of the audit.
Designing of the sample:
Considering the specific objectives of the internal audit, the population from which the auditor is wishing to sample and the size of the sample, the sampling must be designed.
Sample Size:
To determine the size of the sampling in Internal Audit, following points must be considered-
- The lower the risk involved, the greater is the size of the sample.
- Sample size must be considered and determined on the basis of the risk in sampling, the tolerable errors and the errors that are expected to arise.
Statistical and Non-Statistical Approaches:
It is totally the auditor’s professional judgment and decision to use either the statistical sampling or the non-statistical sampling. Also, whenever the statistical sampling in Internal Audit is used, the size of the sample must be calculated or ascertained using the auditor’s professional judgment or the theory of probability.
Selection of Sample:
The samples must be selected in a way to represent the population. The commonly methods of sampling in internal audit are-
- Haphazard Selection
- Use of CAAT’s for Random selection
- Systematic Selection
Evaluation of Sample Results:
The auditor should evaluate the results of sampling for-
- Reassessing the risks involved in sampling.
- For considering the possible effects of the risks on a particular objective of the Internal Audit.
- For analyzing the nature and cause of the detected errors while sampling in Internal Audit.
- For evaluating the results of the samples in order to determine and confirm the assessment of the population and its relevant characteristics.
- For projecting the errors and mistake found in the sample for the population.
Documentation:
The documentation process while sampling in Internal Audit involves the following-
- Effects of sampling result on the objectives of the internal audit function.
- Assessment related to nature and causes of the occurred errors and mistakes.
- Assessment of the risks of sampling and all the tolerable errors.
- Reassessment of the risks of sampling, whenever and wherever required appropriately.
- Projecting the errors and mistakes found in the population sampling.
- Assessment of the rate of error that was expected in the population sample to be tested or analyzed.
- Analyzing the cause and nature of the detected errors in the samples.
- Using a particular type of sampling technique and its results after putting in the rationale.
- The relationship between the specific objectives of the audit and the sample designs.
