Setting standards for statistical sampling in auditing;

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Setting Standards for Statistical Sampling in Auditing
John C. Broderick
Arthur Young & Co.
Auditors welcome the existence of the ten generally accepted auditing standards (GAAS) and the Statements on Auditing Standards. These auditing standards and authoritative interpretations ensure order in the tasks they perform. Among other things, GAAS require that examinations of financial statements be performed with due professional care by persons having adequate technical train­ing,
proficiency, and independence of mental attitude; that examinations be properly planned and supervised; that examinations include a study and evalua­tion
of internal accounting controls; and that sufficient competent evidential matter be obtained to provide a reasonable basis for an opinion on the financial statements. Thus, GAAS provide an auditor with the framework for selecting and applying auditing procedures.
Importance of Judgment
The selection of specific procedures is largely a matter of judgment. In any particular audit engagement, judgment will be influenced by a number of matters; matters such as the nature and the problems of the business whose financial statements are being examined, the quality and effectiveness of the business' accounting procedures and internal accounting controls, and the ma­teriality
of the various items being considered. An auditor must also exercise judgment in determining the extent of auditing procedures, in choosing a method for selecting items to be examined, and in evaluating the audit signifi­cance
of matters that come to his attention during the examination. Exercise of judgment is at the heart of auditing.
Statistical Techniques as an Aid to Judgment
In the early 1960s, auditors began to explore the potential advantages of using statistical sampling techniques to aid them in making audit judgments: in determining the extent of their audit tests, in selecting their test items, and in quantifying their test results. Since those early explorations, statistical sampling as an audit technique has received increasing attention, as evidenced by Statement on Auditing Procedure No. 54, which contained two lengthy appendices devoted to the use of statistical sampling in auditing. These appendices now appear in Sections 320A and 320B of Statement on Auditing Standards No. 1. Witness also the number of articles on the subject in The Journal of Accountancy, The Accounting Review, and The Internal Auditor.
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