How do you design an audit sample, and what affects the sample size?
What the interviewer wants to hear
- Defines the objective, population and sampling unit
- Chooses statistical or non-statistical sampling
- Sample size depends on risk, tolerable misstatement or deviation rate, expected errors and confidence
- Selection methods like random, systematic or MUS
- Evaluates and projects misstatements
Model answer
First I define what I am testing and why, for example existence of receivables or whether purchase orders are approved, then make sure the population is complete and pick the sampling unit, such as an invoice or a rupee. I decide whether to use statistical sampling, like monetary unit sampling, or a non-statistical approach. Sample size goes up when the assessed risk is higher, when tolerable misstatement or tolerable deviation rate is lower, when more errors are expected, and when I need higher confidence. It goes down if other procedures, like strong controls or analytics, already give assurance. I usually test very large or high-risk items separately and sample the rest. Selection should give every item a chance, using random, systematic or MUS selection. After testing, I project errors to the population, compare them with tolerable misstatement and decide whether I need more work, following SA 530.
Can you answer it under time pressure?
Take a timed medium round and get scored on every answer.
More medium Auditor questions
- You are planning the audit of a new client. How do you understand the business and assess risks?
- Walk me through how you attend a client’s physical inventory count.
- How do you run an external confirmation process for receivables, and what if customers do not reply?
- How do you perform journal entry testing to address the risk of management override?
- How would you audit trade receivables at year end?
- Describe your audit approach for property, plant and equipment.
- How would you audit payroll expense for a company with 500 employees?
- Why and how would you reconcile revenue in the books with GST returns during an audit?
- What do you communicate to the audit committee during and at the end of an audit?