Statistical Sampling — A Useful Audit Tool
by ROBERT Z. ROSTRON Principal, Honolulu Office
Presented before the Hawaii Society of Certified Public Accountants, Honolulu—December 1968
OUR EXAMINATION was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting
records and such other auditing procedures as we considered necessary in the circumstances." This statement appears in the "scope" paragraph of the independent auditor's short-form report. The generally accepted auditing standards approved and adopted by the membership of the American Institute of Certified Public Accountants includes the third standard of field work, which reads:
Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries and confirmation to afford a reasonable
basis for an opinion regarding the financial statements under examination.
Before the independent auditor signs a report containing this statement, he must have asked himself questions such as these: Did I do all the things necessary in the circumstances? Did I do enough work? Did I do too much work? Was the price testing of 1% (or whatever) of the inventory all that was necessary in the circumstances?
If these are difficult questions to answer at the time the independent auditor signs a report, how much more difficult are they when asked several years later by counsel for the plaintiff in connection with a lawsuit!
Several years ago it became apparent that better guides were needed to determine how much audit work is sufficient in the circumstances. You may recall that the American Institute of Certified Public Accountants issued a case study on the Extent of Audit Samples. Eight accountants of different firms were given facts and figures about a hypothetical business
concern and were asked to suggest the extent of testing appropriate in the circumstances. The variations in the extent of testing considered appropriate in the circumstances by these eight accountants was significant.
Some of the results were as follows: