## **Learning Outcomes**

After studying this article, you will be able to explain how auditors determine the size of samples used during audit testing. You will understand which factors require sample sizes to be increased or decreased, the impact of audit risk, materiality, and expected errors, and how these considerations apply to both tests of controls and substantive procedures in line with ACCA exam requirements.

## **ACCA Foundations in Audit (FAU) Syllabus**

For ACCA Foundations in Audit (FAU), you are required to understand the principles and application of audit sampling. Focus your revision on the following syllabus points covered in this article:

- Define audit sampling and its role in the audit evidence process
- Identify key factors that affect the determination of audit sample sizes
- Recognize how audit risk, materiality, tolerable misstatement, and expected error influence sample size
- Distinguish between factors relevant for tests of controls and for tests of details (substantive tests)
- Apply knowledge to select appropriate sample sizes in different audit situations

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. When planning an audit sample, which of the following would usually lead to a **larger** sample size?
   a) A higher tolerable misstatement  
   b) Lower audit risk  
   c) Lower expected error in the population  
   d) Assessment of controls as weak

2. Define "tolerable misstatement" in the context of an audit sample.

3. Identify two factors that would lead an auditor to select a **smaller** sample size for test of details.

4. How does an increase in expected error rates within a population affect audit sample size?

## **Introduction**

Audit sampling enables auditors to draw conclusions about a whole population by testing only a portion of items. Since it is rarely efficient or necessary to check every transaction, determining **how many items** to test—known as the sample size—is essential. The size of each sample is influenced by several factors, each aiming to balance audit effectiveness with efficiency. This article explains the main factors that affect audit sample sizes and why getting this right is fundamental for reliable, cost-effective audit work.

> **Key Term: audit sampling**
> The application of audit procedures to fewer than 100% of items within a population so that all sampling units have a chance of selection, allowing conclusions to be drawn about the entire population.

## **Factors Affecting Sample Sizes in Audit Sampling**

### Audit Risk and Sample Size

The primary driver for sample size decisions is audit risk—the risk of issuing an inappropriate opinion due to undetected material misstatements. Higher perceived risk requires more robust audit evidence, which means larger audit samples.

- If inherent risk or control risk is high, or if the auditor sets detection risk low, the sample size must increase to reduce the chance of missing a material misstatement.
- Conversely, where risk is assessed as low, a smaller sample may suffice.

> **Key Term: audit risk**
> The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.

### Tolerable Misstatement (Materiality)

The **tolerable misstatement** sets the maximum error the auditor is willing to accept in a population without concluding that it is materially misstated.

- Lower tolerable misstatement (i.e., stricter standard) requires larger samples so that any unidentified errors are likely to be small and immaterial.
- Higher tolerable misstatement allows for smaller samples since more error is acceptable before it impacts the audit opinion.

> **Key Term: tolerable misstatement**
> The maximum monetary error in a population the auditor is willing to accept without modifying the planned audit approach.

### Expected Error Rate

The auditor estimates the likely amount or frequency of errors (deviations) in the population:

- If errors are expected to be rare, a smaller sample may be justified.
- If errors are anticipated (for example, from last year’s experience), the sample size should be increased to ensure an accurate assessment of the extent and impact of errors.

> **Key Term: expected error**
> The auditor’s best estimate of the error rate or value of misstatement expected to be found in the population to be sampled.
>
> **Key Term: sampling risk**
> The risk that the auditor’s conclusion based on a sample may differ from the conclusion had the entire population been tested.

### Population Size

- For small populations, the auditor might test all items (no sampling needed).
- For large populations, the size itself has only a minor effect on sample size decisions—other factors matter more.
- If the population is stratified (split into homogenous groups), separate smaller samples may be selected from each group, which can reduce the total items tested.

### Other Factors

- **Type of Test**: Tests of controls often require different sample sizes than substantive tests. Zero tolerance for control failures often necessitates higher sample sizes.
- **Confidence Level**: Higher confidence about conclusions means larger samples.
- **Nature of Items**: Where items are more subject to error, complexity, or judgement, sample size may increase.

## **Summary Table: Factors Affecting Audit Sample Size**

| Factor                       | Effect (Larger Sample Size When...)              |
| ---------------------------- | ------------------------------------------------ |
| Higher audit risk            | Risk assessment is high                          |
| Lower tolerable misstatement | Less error can be tolerated                      |
| Higher expected error        | More errors are anticipated                      |
| Type of test                 | Testing controls where zero deviations tolerated |
| Confidence level             | Auditor wants higher assurance                   |

### **Worked Example 1.1**

**An auditor is planning test of controls for a payroll process. Last year, control deviations were noted. The auditor sets a low tolerable deviation rate and expects the same error frequency. Should the auditor increase or decrease the sample size this year, and why?**

> **Answer:**  
> The auditor should **increase** the sample size. This is because a low tolerable rate (less acceptance of errors) and an expected frequency of errors (based on prior year findings) both indicate higher sample sizes are necessary to detect all control failures and support audit conclusions.

### **Worked Example 1.2**

**In a test of receivables balances, the auditor sets tolerable misstatement at £10,000. If they reduce this threshold to £5,000 due to increased risk concerns, what is the likely impact on sample size?**

> **Answer:**  
> The sample size will increase. Lowering tolerable misstatement means the auditor is less willing to accept the possibility of undetected misstatements, so larger samples are needed to reduce sampling risk and detect smaller errors.

### **Exam Warning**

> A common error is to think that population size makes a significant difference to sample size in large populations. In practice, beyond a certain size, other factors like risk and materiality have a far greater impact on sample size decisions. Do not simply increase samples just because a file has many items.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Audit sample size must be determined by risk, materiality, and expected error, not just population size
- Lower tolerable misstatement (materiality) increases sample size requirements
- Higher expected error in the population means larger samples should be selected
- Increased audit risk means larger sample sizes to achieve required assurance
- Sample size for tests of controls may differ from those for tests of details, depending on the test objectives
- Stratification and confidence levels may also influence sample size decisions

## **Key Terms and Concepts**

- audit sampling
- audit risk
- tolerable misstatement
- expected error
- sampling risk

Audit sampling - Factors affecting sample sizes