Important Definitions

Audit sampling is when the auditor decides to perform audit procedures on less than 100% of transactions/balances in the population (not testing all transactions in the accounting ledger).

Sampling risk—Sampling risk refers to the risk of not detecting material misstatement because 100% of transactions/balances were not audited.

Non-sampling risk– Audit risk because of reasons other than sampling risk.

Tolerable misstatement– Limit/threshold the discrepancy is bearable for the auditor. The amount of misstatement falls below materiality.

Scope of ISA 530

Following is the scope of ISA 530.

1. Apply sampling techniques when selecting transactions to perform audit procedures.
2. ISA 530 complements ISA 500, designed to obtain sufficient and appropriate audit evidence.  

Requirements of ISA 530

Following are the requirements of ISA 530.

1. The auditor is required to select sufficient samples to reduce audit risk to acceptable levels.
2. The audit procedures will be performed for each item selected from the population.
3. The sample is to be selected so that each unit of the population has an equal chance of selection.

Sample selection methods

Following are the sample selection methods.

1. Random selection – It’s randomly applied, and each unit has an equal chance of selection.
2. Systematic selection– The selection of the unit/transaction is made after equal intervals.
3. Monetary sampling selection– It’s a value-weighted selection of the units.
4. Block selection– The entire block of units/transactions is selected from the entire population.

Conclusion

ISA 530—Audit sampling is designed to select an appropriate sample from the population. The sample needs to be representative of the entire population and have equal chances of selection for each item within the population.