Sampling: How important is sampling to the audit process? How effective is sampling in detecting material misstatements? What are the major problem areas in the use of sampling?

Key Points

1. Auditors are required to consider sampling risk, although it may not always be quantified. When auditors consider sampling risk, they are more likely to require audit adjustments.

2. Sampling risk can be minimized by increasing sample sizes. The trend prior to Sarbanes-Oxley appeared to be toward decreasing sample sizes, and recent evidence suggests auditors have increased sample sizes in the post-SOX period. .

3. Although the audit literature assumes nonsampling risk to be nontrivial, it may be significant in many cases.

4. Auditors often fail to project sample errors in tests of details of balances, depending on the nature of the test and materiality of the error. Also, errors may be deemed nonrepresentative and contained to a subpopulation.

Review Questions

1. What current mechanisms exist to reduce nonsampling risk? When is nonsampling risk most likely to be a problem?

2. What are the risks when auditors selectively decide not to project certain errors? Is it appropriate to treat certain errors as anomalies?