Sampling Methods And Implications On Organizational Performance In The Malaysian Audit Environment

Objectives and risks associated with audit sampling

The report is prepared for analyzing the several methods of sampling that is available in the auditing environment of Malaysia. Malaysia has adopted the International auditing standard in year 2006 that has led to the introduction of highly technical standard that brought an impact on both the auditors and preparers of financial statements. In this particular section of report, the objectives of methods of sampling have been discussed. In addition to this, explanation of two distinct methods of sampling have also been demonstrated for gaining an in depth understanding of the sampling methods that are used by firms under the guidance of International auditing standard. Audit sampling is the application of procedures of audit within account balance or any class of transactions to less than hundred percent of the items of population. Auditors with the help of sampling means are able to evaluate and obtain evidence about audit related to the selected items characteristic. Thereafter, it would be possible for auditors to draw conclusion about the population from where the sample has been drawn. Methods of sampling helps in selecting an appropriate sample on unbiased items that leads to reaching conclusion about the entire set of data (Krahel & Titera, 2015).  

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When using audit sampling, the objectives of auditor is to draw conclusion about the population from where sample is selected by providing a reasonable basis. However, there are some risks associated with the conclusion made by the auditor which is known as sampling risk. It is the risk that the actual conclusion may be different from the conclusion of auditors that is based on the sample if the same auditing procedures are applied to the entire population. There can be two types of erroneous conclusion that can be made by auditors due to sampling risk. Auditors might conclude that there does not exist any material misstatement when it actually does in case of test of details or the test of controls are more effective that they are actually in event of test of controls. These types of erroneous conclusions are the primary concern of auditors because occurrence of such errors would lead to inappropriate audit opinion and reflect the effectiveness of auditing. If the initial conclusions made by auditors are incorrect due to erroneous conclusions made by auditors, this would require them to do additional work and this impacts the efficiency of auditors (Endaya & Hanefah, 2016).

Statistical and non-statistical sampling techniques

Furthermore, the decision of auditors to use statistical or non statistical sampling method is concerned with the judgment of auditor to obtain appropriate audit evidence in an efficient manner. In event of statistical sampling, determination of sampling size can be done by using probability sampling and non probability sampling approaches. Sampling of audit can be designed by using appropriate steps of which one of the steps is to select as sample using means of probability and non probability and then performing the test. Sampling techniques can be divided into probabilistic sample selection and non probabilistic sample selection.

It is a method of sampling where each items of population has a known probability equal chances of getting selected in the sample because the samples are selected on random basis. Some of the methods that are used by auditors in selecting the sample using probabilistic method include simple random sampling selection, systematic sample selection, stratified sample selection and probability proportional to selection of sample size (Chen et al., 2015).

Probabilistic method is a technique of statistical sampling that is concerned with ascertaining whether there is existence of control characteristics or not. It helps in determining the effectiveness of control resulting from deviations due to internal control policy (Elder et al., 2015).

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Simple random sampling: According to this statistical method, every element of the set experiences equal probability to be selected as sample. This is the main feature of this sampling technique.  On every selected element, the procedure of auditing will be applied. Consequently, the conclusions will be related to entire elements existing within the audited set. Auditors use this method for those sets, which do not possess any segmentation for auditing purpose. In this context, it needs to mention that random sampling can be done through replacing element that is already selected or without any replacement (Wei et al., 2014). However, financial auditors generally apply simple random sampling without replacement.

Example: The financial auditor may want to select 50 random elements from the set of cashing operations. This is included in the cashing register. The auditor can introduce parameters, which imply the set related to cashing operations, in the computer. The set of cashing operations means total number of cashing operations from which the computer program can randomly chose the number related with the operations, which further can make the sample.

Systematic sampling: In this method, the financial auditor measures a counting step after which selects elements methodologically in the sample. The person obtains this counting step through dividing the total size of the set with the wanted sample size. The main advantage of this sampling technique is that the process is comparatively easy to form (AICPA., 2017). Though auditor could find a risk related to objectivity within the process of selecting sample elements.

Probabilistic sample selection

Example: There are 400 operations in the cashing register. The size of selected sample consists with 40 elements. This implies that the dimension for the next step is 10. The auditor should determine the beginning point for forming sample. If the randomly selected starting number is 3 then operation that take 3rd position within the register will be considered as the first element of the sample.

Stratified sampling selection: In this process, the auditor selects those particular elements, which have highest values. At the time of selection, total set is divided into various subsets that depend on dimensions for forming larger samples. This is done for obtaining larger subsets. Through stratifying all elements into subsets, the financial auditor can provide greater importance for some specific elements. On the contrary, less importance will be provided to other elements of other subsets.

Example: The auditor of finance groups the purchasing invoices into 2 subsets based on their value. The criterion of this stratification is 1000 MU. Then the obtaining subsets are:

  • Those contain elements more than 1000 MU, the auditor can select 20 elements
  • Those contain elements less than 1000 MU, the auditor can select 10 elements

Probability proportional technique of sampling: In this process, the sample is formed out of those elements, which have the highest values. This offers an element the possibility to be selected with the registered value of the same proportionally.

Example: If the number of element is 20000 within the sample then the probability of selecting one element would be 1/20000.

Under this method, auditors do not use probabilistic methods for selecting sample; rather they rely on using professional judgments for selecting sample. Such samples can be selected by using methods such as block sample selection, directed sample selection and haphazard sample selection. Auditors under this technique are required to apply his professional judgment about audit test to draw the conclusion. The guidelines about the non statistical sampling audit are provided by audit firms to cope up with the drawback associated with the ineffectiveness and inefficiency of audit testing. There cannot be quantification of sampling risk for testing classes of transactions and account of balances using non statistical sampling (Sayyar et al., 2015).

In order to perform substantive tests by auditors, they are permitted to use both the non statistical and statistical sampling approaches during auditing. However, for sample planning, evaluation and selection by comparing to the statistical methods, the more frequent practice used by the firm are the non statistical methods of sampling. Also, during auditing, both statistical and non statistical sampling is gathered together. Auditors using his professional judgment determine the audit evidence sufficiency by the accumulation of such evidence using non statistical sampling approaches (Collins et al., 2016). Nonetheless, the following requirements should be fulfilled by both the approaches. The sample selected should represent the whole sample. When performing substantive test, the size of sample should take into account risk, materiality and characteristics of population. The acceptance level of sampling risk arising from sample results and projection of errors must be considered.

Simple random sampling

For using both the sampling and non sampling approaches, selection and designing of samples should be done by auditors for carrying out the evaluation of the sample results and applying audit procedures. This would assist auditors in obtaining sufficient evidence of audit. However, the professional judgment is used by auditors irrespective of the approach of sampling which is chosen during the audit sampling. It is so because the quality of audit is governed by the professional judgment that is exercised by the auditor during testing of samples and helps in determination of appropriate statistical parameters for collecting audit evidence (Samaha et al., 2015).

It is the matter of judgment of auditors that governs the decision to use the approach of statistical or non statistical sampling. This is so because in particular circumstances, it is required by auditors to obtain sufficient audit evidence in the most efficient manner. For instance, the statistical analysis of the absence or presence of errors will be less important that the analysis of the cause and nature of errors in event of test of controls. In such situation, it would be appropriate to use non statistical sampling. The statistical and non statistical approach used by the auditors forms the basis of selecting sample in the process of sample selection. Nevertheless, some sampling methods such as systematic sample selection, random sample selection method, stratified sample selection can be used in both the sampling approaches that is statistical and non statistical. On other hand, sampling methods such as directed sample selection, block sample selection and haphazard sample selection are appropriate to use when the non statistical approach are chosen to be use by auditors (Mat Zain et al., 2015).

The criteria for selection samples during audit by auditors are dependent upon the nature and risk of transactions. It is required by the auditors to examine such transactions using non statistical sampling if the population contains are items and uses both the statistical and non statistical using if the population is made up of large as well as small items (Sayyar et al., 2015).   

For auditing of small and medium scale enterprises and big companies, auditors make use of different techniques of sampling. The routines of transaction of companies forms the basis of the selecting the techniques of sampling.

The journal article titled “The Impact of quality of audit on the performance of firms: Evidence from Malaysia” examined the impact of the quality of audit on the performance of Malaysian firms by selecting listed companies on bursa stock exchange for the period 2003 to 2012. A sample of five hundred forty companies has been chosen from stock exchange of Malaysia depicts that return on assets as measure of performance of firms is inversely related to audit fees. It means that weaker performing companies demand more for using such sampling methods. Key items constitute greater proportion of the balance sheet; the auditors mainly use non sampling method of selecting samples (Fu et al., 2017).

Systematic sampling

Another article titled” An insight into the sampling policies of large audit firms” conducted an open ended survey for internal accounting firms into their sampling policies. Variations have been found among the large firm sampling policies along with providing evidence. It has been found that the sampling policies of firms is required for projection of errors and the commonly referenced methods were different projection that projected the average misstatement of each items and ratio projection that deals with the application of misstated ratios in the sample (Johl et al., 2015). In addition to this, it is indicated by the response of participant’s that the sampling policy of firms do not treat the misstatements as representative of the population. In the process of standard setting and the inspection, there will be increased focus on testing of revenue. Revenues are tested by using substantial analytical procedures. Therefore, the measurement of the performance of firms by using the auditing procedures and sampling methods is positively associated with the performance of firms. For obtaining assurance over the revenue figures, many firms have relied on the substantive analytical procedures (Endaya & Hanefah, 2016).

In a journal article titled” The use of attribute sampling in audit missions for financial statement companies: a source of risk factor or a source of efficiency” demonstrates the effectiveness of internal control by performing the audit sampling. It has been found that the use of sampling method is very common when conducting the audit of financial statements prepared by investment companies. It is so because they are required to evaluate and obtain evidence in an effective manner about the accounting balance and class of transactions. The primary concern of the auditor is to obtain accurate and sufficient evidence of the auditing sample to support level of planned risk in the preliminary audit strategy of auditors (Al-Matar et al., 2013). A sense of professional skepticism vigilant attitude should be maintained by auditors when deciding upon the strategy of internal control so that a proper balance is assured for maintaining effectiveness and efficiency in conducting audit. Therefore, it can be seen that adoption of appropriate sampling methods by auditors helps in detecting the material misstatement and thereby there is accurate measurement of the performance of firms.

In an article titled “The effect of firm performance and internal audit” attempts to analyze the relationship between performance of firms and internal characteristics of audit. The department of internal audit quality is reflected in financial report prepared by organization. One of the significant parts of structure of corporate governance is practicing of internal control that is effective and helps in analyzing the material misstatements in the financial statement of company. There exist relationship between the performance of firms and the sampling method employed by auditors (Tee et al., 2017).

Stratified sampling selection

From the analysis of the sleeted research papers, it can be said that there are less evidence about the use of both statistical and non statistical method employed during the process of auditing in Malaysian firms. Furthermore, it has been found that auditors tend to use professional judgment when identifying large values or key values. Nevertheless, the firms in Malaysia can use both the sampling techniques in their audit procedures by complying with the International auditing standard and following the recommended guidelines for auditing (Kafetzopoulos et al., 2015). The present research paper should also consider the quality of audit using sampling method as moderator between the performance of firms and characteristics of audit. One of the integration that the future research work should account for is to provide investors with clear picture to integrate the market based measure and accounting measure in enhancing the performance of firms.


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Samaha, K., Khlif, H., & Hussainey, K. (2015). The impact of board and audit committee characteristics on voluntary disclosure: A meta-analysis. Journal of International Accounting, Auditing and Taxation, 24, 13-28.

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