Table of Contents CHAPTER 1 THEORYTICAL OVERVIEW OF SAMPLE SELECTION IN AUDITING FINANCIAL STATMENT 3 1 General overview of audit sampling 3 1 1 The concept of choosing a template 3 1 2 Concepts relat.
Table of Contents CHAPTER 1: THEORYTICAL OVERVIEW OF SAMPLE SELECTION IN AUDITING FINANCIAL STATMENT .3 General overview of audit sampling 1.1 The concept of choosing a template .3 1.2 Concepts related to audit template selection Statistical and Nonstatistical Sampling 2.1 Statistical sampling 2.2 non-statistical sampling 2.3 Comparison of Statistical and Nonstatistical Sampling Meaning of sample selection in the audit process of financial statements CHAPTER THE PRACTISE OF APPICATION SAMPLING IN SEVERAL AUDIT FIRMS 12 Auditt sampling method used at AAC Auditing and Accounting Company 12 1.1 Overview of sample selection techniques that AAC performs 13 1.2 Actual sample selection process in audit of financial statements conducted by AAC .13 Auditt sampling method used at Viet Nam Auditing Company (VACO) 14 2.1 Current situation of sample selection process in auditing financial statements of the Company VACO 15 1.2 Actual sample selection process in audit of financial statements conducted by VACO 15 CHAPTER ENCOURAGEMENT 16 Introduction In auditing, the basic object of the audit is the current state of financial and accounting activities including specific operations, specific assets, specific documents and often expressed in defined amounts Meanwhile, the number of such operations, assets or documents is often very large with specific elements For subjects with a large geographical scope and scale of activities (such as the operation of a budget level, a corporation with many members, each member company has many enterprises ) it is not possible to audit all content and all related units Therefore, in many cases (especially in financial statement audits or periodic audits) it is not possible to control all objects and assets, nor can it review and reconcile all accounting documents and balances of accounts Meanwhile, appropriate prudence does not allow the audit to ignore material misstatements to eliminate potential risks, control risks, and minimize detection risks To varying degrees, the confidence of those concerned about the financial position of the entity being audited also requires the auditor (AUDITOR) to make the most accurate assessments under the permissible conditions of the quality of the financial disclosure table So I decided to choose the topic: "Research on audit sampling and its application in several firms" The article consists of three chapters: Chapter Theoretical overview of sample selection in auditing financial statements Chapter Audit Pattern Selection Practices in Some Audit Firms Chapter Encouragements CHAPTER 1: THEORYTICAL OVERVIEW OF SAMPLE SELECTION IN AUDITING FINANCIAL STATMENT General overview of audit sampling 1.1 The concept of choosing a template Sample selection in an audit is the process of selecting a group of elements or units (called a template) from a large set of elements or units (called the whole) and using the characteristics of the sample to infer the characteristics of the whole According to Vietnam Auditing Standard No 530 – Audit Sampling, issued according to Circular No 214/2012 / TT / BTC dated December 06, 2012 of the Ministry of Finance, "Audit sampling (referred to as sampling) is the application of audit procedures on the number of it elements more than 100% of the total number of elements of an account balance or a type of operation, so that every element has a chance to be chosen." Sampling will help the auditor to collect and evaluate audit evidence on the characteristics of the selected elements, in order to form or reinforce conclusions as population 1.2 Concepts related to audit template selection a) Population Population is a set consisting of all elements or units belonging to the object of study Each element in the whole is called the overall unit According to VSA 530 "Population is the entire data from which the auditor draws samples in order to draw conclusions about the entire data " In an audit, the whole is the entire data from which the auditor selects the sample from which the analysis can come to a conclusion For example, all elements in some account projections or a type of business constitute a whole A whole can be divided into groups or subsets and each group gets its own test In accordance with Vietnam Auditing Standard VSA 530, auditors must ensure the suitability and completeness of the overall: b) Sampling unit Sampling units are separate elements that make up the whole For example, arising operations, sales invoices, VAT invoices, statements, c) Sample size The set of elements selected as representatives in the process of examining a trait or a certain sign of the whole is often called a sample The number of elements included in the sample is often referred to as the sample size or sample size, which is usually quite small compared to the overall sample selection Sample size is influenced by audit risk levels The lower the acceptable risk, the larger the sample size needed The sample size determined by statistical methods or the auditor's professional judgment must be objective in all cases d) Representative templates The representative sample is the one that bears the characteristics of the whole For example, through an internal control audit, 6% of checks not have original documents attached When selecting a sample of operations to check, out of 500 checks, 30 checks are selected without original documents attached, the sample is selected as a representative sample e) Sample selection risks When choosing a sample, the risk of choosing a sample always arises Sample selection risk is the possibility that the AUDITOR's conclusions based on sample testing may differ from those reached by the AUDITOR if examined as a whole with the same procedure In other words, sample selection risk is the discrepancy between the sample result and the actual result There are two types of sample selection risks: • Risk when the auditor concludes that the control risk is lower than the actual level (for the control test) or there are no material flaws when in fact there is (for the underlying test) This type of risk affects the effectiveness of the audit and may result in improper audit opinions • Risk when the auditor concludes that the control risk is higher than the actual risk (for the control test) or that there are material flaws when in fact there is none (for the underlying test) This type of risk affects the effectiveness of the audit as it often leads to additional work to prove that the initial conclusions are incorrect The risk of sample selection can be reduced by increasing the sample size If the sample size is increased until it is equal to the whole, the risk of selecting the sample is zero However, the increased sample size will increase the amount of audit work, which means an increase in audit costs, so to choose an audit sample effectively, it is necessary to balance the risk of choosing a sample with the cost of choosing a large sample In order to reduce the risk of sample selection, we need to select the appropriate method for the process of selecting sample items from the whole, the auditor can choose the method of random sampling or system sampling f) Risks of not selecting a template The risk of not selecting a sample is the risk when the auditor comes to a wrong conclusion for reasons unrelated to the sample size The cause of this risk is often the auditor's competence and experience, For example, the auditor may use inappropriate audit procedures or the auditor misinterprets the audit evidence and fails to identify errors auditors and audit firms are able to control non-sample selection risk and be able to reduce non-sample selection risk to an acceptable level through thoughtful planning and monitoring of plan implementation, and must implement strict and appropriate quality control procedures for the company the audit Statistical and Nonstatistical Sampling 2.1 Statistical sampling Statistical sample selection uses a prototyping process based on probability theory Attribute-based sampling is used when there are only two possible outcomes for each sample, for example, match or mismatch Variable-based sampling is used when sample results occur in a continuous range, e.g., the number of security breaches over time Sampling Plan The main factors that will affect the assessment sampling plan are: The size of the organization Number of qualified auditors Frequency of reviews during the year Duration of individual reviews level of trust required externally Reliability level A 5% sampling risk (~95% reliability) means that we take the risk that out of 100 samples will not reflect the values that would be seen if the entire population were examined The auditor must record sampling work, including: - Description of the sampled population - Sampling criteria used for evaluation (considered acceptable samples) - Statistical parameters and methods were used - The number of samples evaluated and the results obtained - Statistical tools can calculate sample sizes for the overall, occurrence rate, and confidence levels vary - Sample size Systematic sampling Systematic sampling means that you select "every N item" in the master as the sample However, you must ensure that the system sampling interval does not create deviations Random sampling Random sampling gives each item in the sampled population an equal chance of being selected That means selecting an item, without affecting the probability of any other item being selected Stratified sampling When items from each subgroup in the whole need to be represented, you can use "stratified" sampling To that, divide the total into subgroups or classes Then select a random sample or system template from within each subgroup The sampling portion for each subgroup can be taken at the same rate that the subgroup has in the whole Cluster sampling In "stratified" sampling, the subgroups are homogeneous In "cluster" sampling, the more heterogeneous the cluster to fit the population, the better A random sample taken from within one or more selected clusters 2.2 non-statistical sampling Judgement sampling The sampling is based on judgment based on the knowledge, skills and experience of the assessment team Sampling to consider: Previous assessment experience within the scope of the assessment (more time may be spent if experience is less) Complexity and interaction of processes (more sampling if a process is complex) Changes in technology and management systems (more sampling if the risk is higher) Areas of risk have been previously identified areas and areas of improvement (review of weak areas) Output from monitoring the management system (listening for feedback on issues) The template should provide coverage of all item types overall One limitation of judgment-based sampling is that it is impossible to have a statistical estimate of the effect of uncertainty on your audit findings and conclusions Convenience sampling Another type of non-statistical template selection is the "convenience" template selection With this method, you choose a template that is nearby and available It sounds easy However, in most cases, you cannot draw conclusions on the whole, since the sample is unlikely to be representative 2.3 Comparison of Statistical and Nonstatistical Sampling International, AICPA, and PCAOB auditing standards allow the auditor to apply either statistical or nonstatistical sampling PCAOB AU 350 notes that sampling risk is present in both nonstatistical and statistical sampling, and all audit sampling involves judgment in planning and performing the sampling procedure and evaluating the results of the sample Further, paragraph 2.24 in the AICPA (2012a, 14) Sampling Guide indicates that a properly designed nonstatistical sample that considers the same factors considered in a properly designed statistical sample can provide results that are as effective as those from a properly designed statistical sampling application One advantage of statistical sampling is that it allows the auditor to explicitly quantify the level of sampling risk However, when the populations tested via audit sampling contain zero or trivial misstatement, the advantage of statistical sampling may be less important to the auditor, as auditing standards require the sample sizes for statistical and nonstatistical sampling to be comparable (PCAOB AU 350) Colbert (1991) argues that statistical sampling is more defensible than nonstatistical sampling Gray et al (2011) conducted focus groups with financial statement users, and some users expressed disappointment that sample sizes were not larger and selected more scientifically Gilberston and Herron (2003) administered an experimental instrument to 122 jurors and students asking them to determine liability and assess damages in a liability case involving 800 fictitious sales transactions out of a population of 12,000 transactions The auditors examined 100 sales invoices and found no discrepancies Subjects were not more likely to find the auditors guilty in the nonstatistical sampling condition compared to the statistical sampling condition However, damages were significantly larger in the nonstatistical sampling condition Meaning of sample selection in the audit process of financial statements The sample selection method is widely used, popular due to its particular significance both in research and in practice In fact, when studying a whole, the application of the whole research methodology will likely face the following difficulties: If the whole is too large, then the whole study will require a lot of money and time If the whole is too large, then the whole study will require a lot of money and time Due to the large scale of research, the level of organization and management is limited, leading to errors in the initial information collection process, limiting the accuracy of the analysis results In many cases it is not possible to grasp the entire elements of the whole to be studied, so it is not possible to conduct a study of the whole If the elements of the whole are again sabotaged during the study, then the whole method of research becomes meaningless When doing research according to the sample selection method, it will limit the above difficulties and have the following advantages: The study will be faster than the whole study because the number of elements to examine is less, the volume of recording will be reduced 10 Due to the small number of inspection elements, the number of employees and time will be reduced, so sample selection research will save manpower and energy Because the test element book is small, the test content can be expanded Due to the above reasons, in practice the whole research method is usually only applied to small-scale sets, and the main method used is the sample selection method In the audit of financial statements, too, choosing the template used by the full examination is difficult to carry out, due to the fact that the object of the audit is too large In an audit its specific objects are specific operations, operations, specific assets, specific documents and usually manifested in defined amounts The number of operations, operations, assets and documents is so large that in the audit of financial statements, it is impossible to check all assets, nor to review and reconcile all accounting documents, account balances that if there are expenses are also too large Audit firms are limited by time, money and people resources, so they always have to weigh the costs and benefits The auditing company can only issue a certain amount of expenses The time for an audit is also limited from both the audit firm and the client Determining the time, cost and how qualified staff is needed must be weighed by many factors including the characteristics of the client's business, the risk of the audit and the cost of the audit Therefore, checking 100% of accounting data is very difficult to do, sometimes costly and ineffective On the other hand, the evidence obtained from the selection of the audit sample is only one of the sources for collecting 11 evidence of AUDITOR and AUDITOR does not seek absolute certainty and accuracy According to Vietnam Auditing Standard No 320 "Materiality in Auditing", "when conducting an audit, the auditor must take into account the materiality of the information and its relationship to audit risk" This means that AUDITOR must make accurate assessments of the information on the financial declaration in terms of material aspects, to create confidence for those who are interested in the information on the financial declarations and the clients who hire auditing firms also want to receive services corresponding to the cost they spend The requirement for audit firms is to ensure the quality of the audit in conditions of limited resources Choosing a template is a solution to the above problem With the quantity and representativeness of the selected sample, AUDITOR will ensure the quality of audit at a reasonable cost However, in order to use the sample selection method in auditing financial statements, it is necessary to converge some of the following factors: The nature and severity of account balances or operations not require a full check The time and cost of the overall audit is so large that AUDITOR needs to consider the effectiveness and duration of the audit The collection of audit evidence through sample selection is to support a certain judgment of AUDITOR 12 CHAPTER THE PRACTISE OF APPICATION SAMPLING IN SEVERAL AUDIT FIRMS Auditt sampling method used at AAC Auditing and Accounting Company AAC Auditing and Accounting Co., Ltd., formerly an Auditing and Accounting company under the Ministry of Finance, established in 1993 and restructured in 1995, is one of the very few auditing firms to be born and operate in Vietnam AAC is a member of the international audit organization PrimeGlobal, headquartered in the United States with more than 300 members operating in 90 countries worldwide AAC provides a full range of value-added services such as auditing, accounting, tax consulting, financial – investment consulting, training and recruitment support, valuation services to determine business value, appraisal of machinery, equipment, real estate appraisal 1.1 Overview of sample selection techniques that AAC performs The sample selection technique that AAC uses in both control testing and basic testing is a non-statistical sample selection technique With the non-statistical sample selection technique that AAC performs, the method of selecting the elements of the sample is a non-random method The outstanding advantage of aac sampling technique is that the risk of sample selection is always low because the company often chooses samples with a fairly large sample size Besides, with the non-statistical sample selection technique, the process of designing the template and selecting the elements of the template is not complicated, does not take much time In addition to the above advantages, the AAC non-statistical sample selection technique applies, and the disadvantage is that the sample size is too large Although large sample sizes will reduce the risk of sample selection, 13 it will take a long time to select and test elements On the other hand, the overall process of generalizing from the sample does not use statistical mathematical formulas nor quantify the risk of sample selection 1.2 Actual sample selection process in audit of financial statements conducted by AAC a Actual sample selection process in audit of financial statements conducted by AAC b Selection of sample elements: The methods for selecting sample elements that AAC uses include: Selecting samples according to the reciprocal operation on the detail book, selecting samples by time block, selecting accidental samples, selecting samples according to career judgment c Perform inspections and handle errors Auditt sampling method used at Viet Nam Auditing Company (VACO) VACO Auditing Co., Ltd is one of the leading auditing firms in Vietnam providing specialized services in auditing, financial consulting, accounting, taxation, valuation and corporate valuation, training and human resource management for all clients of all economic sectors operating in Vietnam With a team of professional staff systematically trained at universities, prestigious training organizations at home and abroad, with in-depth qualifications and rich practical experience in specialized fields, and a deep understanding of the current legal system on auditing, finance, accounting, tax, investment in Vietnam, as well as mastering Vietnamese and international professional standards, along 14 with a system of offices located in major cities of Vietnam such as Hanoi, Ho Chi Minh City, Hai Phong, Dong Nai province, VACO is capable of providing Audit services, Consulting with high quality and efficiency for organizations and businesses operating in Vietnam VACO's motto is to provide the best resources and priority service to meet the specific requirements of customers VACO ensures that customers will receive the highest attention and be best met with the desires and interests of customers VACO has been providing services to many customers, with many types of businesses, operating in all fields, from leading enterprises in the industries of the Group, State Corporations, foreign-invested enterprises, joint stock companies, Limited liability companies, projects funded by international organizations, basic construction investment projects with high quality and trust VACO always goes hand in hand with the development of customers, the quality of service provided by VACO to customers is the foundation for VACO's values over the years VACO also believes that customers will be really satisfied with the quality of service that VACO provides VACO aims to achieve its goals by successfully supporting customers and creating conditions for employees to grow tremendously 2.1 Current situation of sample selection process in auditing financial statements of the Company VACO The method that VACO Auditing Co., Ltd applies is to choose a statistical sample, so the determination of sample size is not based on statistical formulas but entirely based on AUDITOR's own judgment when working directly with customers Therefore, the sample size will be estimated to ensure that the sample size is large enough Such an estimate is based entirely on AUDITOR's 15 professional experience Typically, for first-year audit clients, the sample size selected will be larger for older clients, with a certain reliability and less volatility over the years Because the sample size is quite large, it is possible to reduce the risk of sample selection However, this does not bring the advantage of choosing a model, which is to reduce costs and save time 1.2 Actual sample selection process in audit of financial statements conducted by VACO Based on actual conditions in Vietnam, at VACO Auditing Co., Ltd., sample selection is often applied in both control and basic testing Sample selection was conducted for both tests These steps are also carried out in accordance with the norm, including: + Template design + Determine the method of selection + Check the elements + Evaluate sample results CHAPTER ENCOURAGEMENT First, improve AUDITOR's understanding, helping AUDITOR understand the nature of each sample selection method so that it can know how to apply different sampling methods in each specific case At the same time, once we 16 understand the nature of each method, AUDITOR can apply a combination of complementary methods to increase the representativeness of the sample Secondly, building the company's definition and reasoning system so that there is consistency with the normative documents that AUDITOR must follow such as standards, circulars, guidelines , creating a consistent basis for AUDITOR to feel secure and have a basis to work Thirdly, companies need to strengthen strict supervision of the audit process in general and the sample selection process in particular, specifically assigning experienced technicians to regularly check and supervise the work of employees, especially new workers, to be able to promptly comment on errors, unreasonable jobs and methods of sample selection Fourth, companies need to organize the process of evaluating and reviewing the results of the sample selection work and the possible sampling risks to help AUDITOR have the opportunity to review what they have done to learn from experience and evaluate the effectiveness of the sample selection method used to better understand that method Fifth, AUDITOR while implementing sample selection methods also needs to be flexible and propose appropriate options to produce the best sample, minimizing risks due to sample selection Sixth, in the process of planning the audit as well as the sample selection plan, AUDITOR should consider the results obtained and consult with senior AUDITOR when they want to choose a certain method to see if that option brings the best effect or not 17 REFERENCES - Nguyễn Minh Châu (2019), Tìm hiểu kỹ thuật chọn mẫu kiểm tốn báo cáo tài cơng ty TNHH Kiểm toán kế toán AAC 18 - GS.TS Nguyễn Quang Quỳnh , Sách Giáo Trình Lý thuyết Kiểm Tốn, Đại học Kinh Tế Quốc Dân - Randal J Elder (2013), Audit Sampling Research: A Synthesis and Implications for Future Research - Tatiana Danescu (2012), Opportunity and Necessity in Audit Sampling Nonstatistical Sampling Method 19 ... 2012 of the Ministry of Finance, "Audit sampling (referred to as sampling) is the application of audit procedures on the number of it elements more than 100% of the total number of elements of. .. be weighed by many factors including the characteristics of the client's business, the risk of the audit and the cost of the audit Therefore, checking 100% of accounting data is very difficult... collection of audit evidence through sample selection is to support a certain judgment of AUDITOR 12 CHAPTER THE PRACTISE OF APPICATION SAMPLING IN SEVERAL AUDIT FIRMS Auditt sampling method