Discussion:
Kimberly
Audit sampling is a way for auditors to check and confirm transaction information and balances in accounts. The issue with sampling is that it is only a limited amount of information. Depending on the size of the company and the large or small amount of information to sample, auditors generally come up with a risk of incorrect rejection (RIR) percentage that would be acceptable for that size company. For example, if the RIR allowed for a sampling of 10 pieces of sample data is .10 that means that the auditors are allowing that company to be missing a piece of data once in that sample. If the amount is higher than that, the auditors can and may ask for additional samples so they can verify if there is a potential issue they need to look into or if possibly just a piece of information may have been misplaced. If the additional testing turns out fine, then they generally will accept that that sampling of data and information verified is correct and that process is fine.
If auditors sampled every item in a company's books, the cost and time needed would be unmanageable. Speaking for someone that has been through several audits, and always at a startup company which means our accounting/finance department was very minimally staffed, can be exceptionally challenging. You have to be there for all the auditor's requests, which is generally a LOT and you have to maintain your job. There could be thousands + worth of transactions to view and most auditors aren't concerned with $25 and no one truly wants to waste their time auditing transactions that aren't of material interest. In addition to the time involved, the costs would be more than many companies could afford. Because of the cost involved, sampling is the only logical way to perform an audit.
Kim Lodwich
Robertson, J., Rouse, R., (Mar 1994) Substantive audit sampling-The challenge of achienving efficiency along with effectiveness, Accounting Horizons, Sarasota Vol. 8, Iss. 1, 35