AUDIT TEST AND SAMPLING TECHNIQUE

AUDIT TEST AND SAMPLING TECHNIQUE

Auditors to have facts or evidence that they used as basis for their professional opinion usually conduct audit test. Some of the tests conducted by auditors are summarized below:

A. SUBSTANTIVE TEST: These are designed to substantiate the completeness, accuracy and validity of the transactions and balances contained in the accounting records and financial statements. It includes:

                   i.               Analytical review: Designed to help locate material mis-statements in the accounts by comparing transactions with balances with related items, for both current and previous periods.

                 ii.               Test of details: it involves tracing the procedure steps followed in the accounting process, by recalculating computation test of details involves:

1.     Transaction testing: checking individual transaction in the financial period concerned carried this out.

2.     Balance testing: this is checking the balance of accounts

3.     Depth testing: this denotes the tracing of transactions through from inception of find recording.

B. COMPLIANCE TEST: These are test designed to test the extent to which internal control system to have been operating throughout the year in accordance with the laid down procedures. Compliance tests are carried out to ensure that the internal control in which the auditor wishes to rely on are in fact working properly in practice.

C. WALK THROUGH-TEST: These are defined as tracing one or more transactions through the accounting and observing of the application of relevant aspects of internal control system.

SAMPLING TECHNIQUES

SAS 100 requires that auditors should carry out procedure designed to obtained sufficient appropriate audit evidence to determine with reasonable confidence whether the financial statement are free of material misstatement.

According to IAS 539, audit sampling is the application of audit procedures to less than 100% of items within an account balance or class of transactions to enable auditors obtain and evaluate evidence about some characteristic of the items selected in other to form or assist in forming a conclusion concerning the population which makes that account balance or class of transaction.

Definition: Audit sampling means drawing conclusion about an entire set of date by testing a representative sample of items. The set of data, which may be set f account, balance e.g. creditors, debtors, fixed assets etc, or transactions e.g. wage payments; all advice notes etc, is called POPULATION. The individual items making of the population are called sampling units. Reasons for Audit Sampling

a)     It is often impracticable to carry out 100% audit testing because of the large number of items of transactions, assets, liabilities and owner equity items to be examined.

b)    In order to meet the auditor reporting deadline, 100% audit testing may be impracticable.

c)     Carrying out 100% audit testing may be time consuming and therefore uneconomical.

d)    100% audit testing may tedious and may reduce the audit to mere routine procedures, which could detract from the objective of the audit.

e)     It is possible for the auditor to reach conclusion by way of sampling procedures instead of conducting 100% audit testing.

f)      The audit objectives axe not to report on the accuracy of the financial statement but on its truth and fairness. Consequently, the auditor does not need to examine all the items.