Save Time by Planning a Strategy Not to Sample

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Because audit sampling may take more time than performing non-sampling procedures, some firms are planning strategies not to sample on all engagements other than certain audits of regulated industries or governments that require some form of sampling.  For some recorded populations, instead of sampling it may be more cost effective to audit individually significant items comprising a majority, or near majority, of the recorded population.

The dollar amount of the recorded population normally considered a majority depends on monetary amounts of the account balances, on the risks of misstatements at the assertion level, on the relative difficulty of auditing a majority of a population and on the consideration of tolerable misstatement for the financial statements as a whole.  For example, we may need to confirm 70% to 80% of accounts receivable when risk of misstatement at the financial statement and/or assertion level is high; 60% or less may be sufficient when these risks are lower.  
We will usually audit lesser amounts of inventories than of, say, receivables or fixed assets because of the relative cost of obtaining evidence.  In doing so, we obtain less evidence supporting our opinion on the financial statements taken as a whole and thereby cause evidence requirements for other account classifications to be greater.  This subjective consideration will also affect decisions about the necessary audit coverage of the other account classifications.

Consistent with this reasoning, less audit coverage of account classifications that are more difficult and costly to audit may be possible if larger amounts of less costly substantive evidence can be obtained from other account balances such as cash, fixed assets, etc.   Depending on the relative amounts of these other account balances, it may be possible to audit individually significant items comprising 10% to 20% of inventories, even if risks are high, and still not sample the remaining population.  


When a strategy not to sample is planned, certain sampling populations may be greater than the lower limit for individually significant items.  Depending on the number and characteristics of the units in the sampling population, and on the percentage of the recorded population audited by other non-sampling procedures, it may be appropriate to select a limited number of units from the sampling population for additional non-sampling procedures similar to those performed for individually significant items.

For example, individually significant items may be selected from a recorded accounts receivable population leaving a remaining sampling population greater that the lower limit for individually significant items.  If the sampling population is comprised of account balances that have a different nature than the larger balances, such as a plumbing contractors’ service receivables which are generally smaller than its unpaid contract billings, it may be appropriate to select some of the smaller accounts and apply the same non-sampling procedures used for the individually significant items.

In such situations, depending on the levels of risk at the financial statement and assertion levels, it may be appropriate to select five to fifteen units from the sampling population.  When risk is higher, a greater number of units should be selected.  Sometimes called the “handful method”, low risk may permit selecting one handful, i.e., five units.  High risks may require three handfuls.  Not exactly scientific, but you get the idea!

I've developed a Sampling Analysis Worksheet to facilitate planning a strategy not to sample.  If you'd like a copy, please submit a "Contact Us" request on our website,


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