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Thread: 05 Standard on Internal Audit - SIA 5 Sampling

  1. #1
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    Default 05 Standard on Internal Audit - SIA 5 Sampling

    Standard on Internal Audit (SIA) 5
    Sampling
    The following is the text of the Standard on Internal Audit (SIA) 5, Sampling, issued by the Institute of Chartered Accountants of India. This Standard should be read in conjunction u4th the "Preface to the Standards on Internal Audit", issued by the Institute of Chartered Accountants of India.
    In terms of the decision taken by the Council of the Institute, the following Standard on Internal Audit shall be recommendatory in nature in the initial period. The Standard shall become mandatory from such date as notified by the Council.

  2. #2
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    Default Introduction of internal audit

    Introduction

    1. The purpose of this Standard on Internal Audit (SIA) is to establish standards on die design and selection of an audit sample and provide guidance on the use of audit sampling in internal audit engagements. The SIA also deals with the evaluation of the sample results. This SIA applies equally to both statistical and non statistical sampling methods. Either method, when properly applied, can provide sufficient appropriate audit evidence.

    2. When using either statistical or non statistical sampling methods, the internal auditor should design and select an audit sample, perform audit procedures thereon, and evaluate sample results so as to provide sufficient appropriate audit evidence to meet the objectives of the internal audit engagement unless otherwise specified by the client.

  3. #3
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    Default meaning of Audit sampling

    3. "Audit sampling" means the application of audit procedures to less than 100% of the items within an account balance or class of transactions to enable the internal auditor to obtain and evaluate audit evidence about some characteristic of the items selected in order to form a conclusion concerning the population. Certain testing procedures, however, do not come within the definition of sampling. Tests performed on 100% of the items within a population do not involve sampling. Likewise, applying internal audit procedures to all items within a population which have a particular characteristic (for example, all' items over a certain amount) does not qualify as audit sampling with respect to the portion of the population examined, nor with regard to the population as a whole, since the items were not selected from the total population on a basis that was expected to be representative. Such items might imply some characteristic of the remaining portion of the population but would not necessarily be the basis for a valid conclusion about the remaining portion of the population.

  4. #4
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    Default meaning of error

    "Error" means either control deviations when performing tests of controls, or misstatements, when performing tests of details.

  5. #5
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    Default meaning of population

    "Population" means the entire set of data from which die sample is selected and about which the internal auditor wishes to draw conclusions. A population may be divided into various strata, or sub populations, with each stratum being examined separately.

  6. #6
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    Default meaning of Sampling Risk

    "Sampling risk", means the risk that from the possibility that the internal auditor's conclusions, based on examination of a sample may be different from the conclusion reached if the entire population was subjected to the same types of internal audit procedure. The two types of sampling risk are --

    (a) The risk that the internal auditor concludes, in the case of tests of controls (TOC), that controls are more effective than they actually are, or in the case of tests of details (TOD), that a material error or misstatement does not exist when in fact it does.

    (b) The risk that the internal auditor concludes, in the case of tests of controls (TOC), that controls are less effective dian they actually are, or in the case of tests of details (TOD), that a material error or misstatement exists when in fact it does not.

    The mathematical complements of these risks are termed confidence levels.

  7. #7
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    Default meaning of sampling unit

    "Sampling unit" means die individual items or units constituting a population, for example, credit entries in bank statements, sales invoices or debtors' balances.

  8. #8
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    Default meaning of statistical sampling

    8. "Statistical sampling" means any approach to sampling procedure which has the following characteristics --

    (a) Random selection of a sample; and

    (b) Use of theory of probability to evaluate sample results, including measurement of sampling risk.

  9. #9
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    Default meaning of tolerable error

    9. "Tolerable error" means die maximum error in a population that the internal auditor is willing to accept.

  10. #10
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    Default Use of Sampling in Risk Assessment Procedures and Tests of Controls

    Use of Sampling in Risk Assessment Procedures and Tests of Controls

    10. The internal auditor performs risk assessment procedures to obtain aii understanding of the entity, business and its environment, including the mechanism of its internal control. Ordinarily, risk assessment procedures do not involve the use of sampling. However, there are cases, where the internal auditor often plans and performs tests of controls concurrend3 with obtaining an understanding of the design of controls and examining whether they have been implemented.

    11. Tests of controls are performed when the internal auditor's risk assessment includes an expectation of the operating effectiveness of controls. Sampling of tests of controls is appropriate when application of the control leaves audit evidence of performance (for example, initials of the credit manager on a sales invoice indicating formal credit approval).

    12. Sampling risk can be reduced by increasing sample size for both tests of controls and tests of details. Non-sampling risk can be reduced by proper engagement planning, supervision, monitoring and review.

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