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ACL Audit Sampling
Most of the auditors are applying a variety of analytical methods in order to obtain the necessary information and evidence which would support their opinion in the audited financial statements of different companies. Their main purpose is to increase the degree of confidence regarding the true economic, financial, and equity situation of a company. As we know, the auditing process involves the verification of several transactions, analysis and testing of many documents, books, systems, and financial statements.
Although data analytics contains the power to automatically check all transactions and documents, sometimes the information required to be verified might not be part of the data. Considering this, the statistical sampling is crucial for auditors when it comes to analyzing a big population of transactions. According to Jones’s study (2017) on statistical sampling and risk analysis in auditing, sampling is an important technique in auditing. It provides a scientific evidence about the population as a whole, without the need of having to audit every single transaction.
Generally speaking, audit sampling is defined as the selection of less than 100% of the items from the whole population in auditing and application of the auditing procedures on these items based on which the auditor can draw conclusions on the entire population (Sekaran & Bougie). When manual assessment of the documents is required from the relevant authorities, auditors can choose to evaluate the entire set of transactions and documents of the company. However, sometimes that is impossible due to limited time and the great effort and attention needed. As such, sampling is undoubtedly essential and the best way to identify statistically a company’s financial situation.
Although it might sound easy, the sampling is a process which requires a special attention especially for big enterprises where there is a diversity of documents to be analyzed and a high number of transactions happening regularly. Furthermore, there is a need to consider the selection of the right type of sampling depending on the type of the transactions or documents to be analyzed.
In the table below we show an example of a typical situation of an enterprise where different companies’ tax base amounts of their sales and purchase diaries are shown.
Figure 1. The typical situation
While in small companies with limited number of documents and transactions, all of them can be checked from the auditors, the sampling is a vital technique for the big enterprises where a selection of the sample transactions is required.
Considering this, dab: Daten - Analysen & Beratung GmbH can provide the auditors with a sampling script developed in ACL which uses several algorithms for sample selection. In addition, the solution is automated in the Highbond environment and is able to run on a click of a button or by putting the script on a schedule if required.
The Solution
By picking the necessary data and information from your ERP Systems, dab:AuditSampling is able to select a representative sample of the documents and transactions to be analyzed using three types of sampling: record sampling, monetary unit sampling, and classical variable sampling. The solution is fully automated in the background and can deal with several challenges including:
- Multiple companies which have different ERP systems where the sampling can be done in a pool or separately.
- Several factors can be considered when drawing the sample such as: materiality, interval, confidence, expected error rate, excluding the repeating transactions etc.
- Reporting of the results can be implemented in Highbond environment - a totally cloud based solutions where the change of the results in not possible.
- Follow up on the results and evaluation of the sampling is also automated.
The analysis starts initially with the sample preparation based on the requirements set from the auditors and a few information gathered from the company. Then, the drawing of the sample of the records takes place depending on the type of sampling chosen. According to the Highbond community, monetary unit sampling is appropriate if you are interested in the total amount of monetary misstatement in a file. On the other hand, if you are interested in the rate of deviation from a prescribed control, then the record sampling is the one to be chosen. The classical variable sampling method is used for estimation of the total audited value or the total amount of monetary misstatement in an account or class of transactions.
The result table can be extracted in a preferred format, or it can be uploaded in the Highbond cloud environment where the follow up of the results could take place.
Figure 2. The Result of the Sampling in Highbond Cloud Environment
The result table can get updated regularly by appending the new results and building a history of the sample selection. On the other hand, there is the possibility to upload several tables for each audit sample performed.
After the right auditing procedures are applied in the selected sample of transactions, the follow up on the results and the evaluation on the total amount of misstatements can take place. Highbond offers the possibility of following up by:
- using the questionnaires to ask the right people for the found misstatements
- using the visualizations and storyboard to present on the total number of misstatements per company code, their average amount, development of misstatements over time etc.
The storyboard below shows few of the graphics which can be used to present the audited transactions and the misstatements identified within an enterprise.
Figure 3. Storyboard for Presentation of the Results
Conclusion
Sampling is an important technique in auditing in cases when manual assessment of the documents is required from the relevant authorities or when the information required to be verified is not be part of the data. By drawing a representative sample, auditors can draw conclusions on the entire population of the financial transactions, which are statistically significant. Depending on the purpose of auditing procedures, auditors can perform record sampling, monetary unit sampling, or classical variable sampling. dab: GmbH provides an automated solution which prepares the sample, draws the sample, and evaluates the misstatements found. It also allows for the follow up of the misstatements and the presentation of the results nicely.
References
Jones, P. (2017). Statistical sampling and risk analysis in auditing. Taylor & Francis.
Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill building approach. John Wiley & Sons.