Three areas where judgement is exercised by the auditor in using statistical sampling
Although statistical sampling applies probability theory in making sampling decisions it is not possible to eliminate the need to apply judgement in certain stages of the sampling process. These include:
(I) In planning the sample the auditor will need to apply his judgement in identifying the most appropriate population from which the sample will be selected. This is because after determining the audit objective, the auditor will need to identify the most appropriate population that will be tested to meet the audit objective. E.g. if the audit objective is to test debtors for recoverability the most appropriate population will be an aged debtors listing. The selection of this will require the use of judgement.
(II) Assessment of the tolerable risk, inherent risk, deviation risk and control risk requires the use of judgement. These factors are relevant in determining the appropriate size of the sample.
(III) Judgement is required in evaluating the effect of the results obtained after testing the sample units and also in concluding whether the audit objectives have been achieved