8 Factors that Influence Sample Size

Multiple factors can influence a sample size, including:

(i) The nature of control – larger samples imply that the auditor should test manual controls because they are subject to less consistency, smaller sampling implies that the auditor is checking automated controls.

(ii) Frequency of operations – larger samples imply that every transaction should be checked, smaller sampling implies that the operation of control happens less frequently.

(iii) Importance of the control – these tests are more important should they be tested more extensively, smaller sampling implies tests are less important.

(iv) Risk of assessing control risk too low – smaller amounts of sampling can result in larger sample size, larger amounts of sampling risk can result in smaller sample size.

(v) Tolerable deviation rate – larger samples imply that the smaller the rate of deviation from the prescribed control procedure, the larger the sample size, while the larger the rate of deviation, the smaller the sample size.

(vi) Expected population deviation rate – larger samples imply that the closer tolerable deviation rate and expected deviation rate are to one another, the larger the sample size, the greater the amount between tolerable deviation rate and expected deviation rate, the smaller the sample size.

(vii) Population size below 5,000 (direct) – the larger the population, the larger the sample rate, the smaller the population, the smaller the sample rate.

(viii) Population size below 5,000 (no effect) – population size does not affect samples.

Why do auditors find it necessary to use sampling and what are the associated risks?

It is necessary for auditors to use sampling because it is often a difficult task to fully audit all items. By conducting audit sampling the auditor is able to evaluate key characteristics of the entire account balance.

There are two inherent risks associated with audit sampling – (i) control risk, and (ii) test of details risk. There is also a sampling risk and a non-sampling risk associated with audit sampling. Sampling risk often implies that the sample used is not an adequate representation of the population. Non-sampling risks suggest that a portion of audit risk that is not due to examining only a portion of the data, this may include human error, inappropriate application of audit procedures, or misinterpretation of the results of a sample.

If control risk is assessed too low based on the sample, this may support the conclusion that the assessed level of control risk is accurate throughout. If control risk is assessed too high, this will have the adverse affect on assessing risk; where the sample does not support the planned assessed level. Other associated risks include the risk of incorrect acceptance, where the sample supports the conclusion showing the account is not misstated when it actually is.