## Performing Audit Procedures on Sample

### Step 1 — Apply the Relevant Audit Procedure

Once a sample is selected, the auditor performs the relevant audit procedure (designed to achieve the stated audit purpose) on each selected item.

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### Step 2 — Unable to Apply the Procedure: Replace the Sample

If the auditor cannot apply the intended audit procedure to a selected item (e.g., a manual sales bill was selected but only a computerised version exists):

1. Replace the sample with another item.

2. Before replacing, check whether the original item contains a misstatement or deviation.

If yes → the replaced item must also have the audit procedure applied to it (treat it as part of the evidence).

3. If unable to apply the original procedure on the replacement → apply an Alternative Audit Procedure (AAP).

Example of AAP:

Original procedure: External confirmation (debtor circularisation).
No reply received from debtor.
AAP: Examine subsequent cash receipts from the debtor, review the customer's credit history, inspect delivery notes, etc.

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### Step 3 — Unable to Apply Any Procedure

If the auditor is unable to:

Design an audit procedure, OR
Apply the alternative audit procedure

→ Treat the item as a Misstatement / Deviation (worst-case assumption).

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### Step 4 — Analyze Nature and Cause of Misstatements / Deviations

After identifying misstatements in the sample, the auditor must:

1. Identify the common feature linking misstatements (e.g., all misstatements are in export debtors — foreign currency debtors).

2. Consider all items in the population that share that common feature.

3. Project the misstatement onto the entire relevant population segment.

Example:

Sample of 4 debtors tested:

D1 (India — Domestic): No misstatement
D2 (India — Domestic): No misstatement
D3 (India — Domestic): No misstatement
D4 (China — Export): Misstatement found

Analysis: The common feature of the misstatement is 'export debtors' → auditor must now consider all export debtors in the population (not just project to all debtors).

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### Step 5 — Anomalous Misstatement

An anomaly is a misstatement that is not representative of the population (a 'flash case' — isolated, one-off).
Example: A misstatement caused by a single unusual transaction that will not recur.
The auditor cannot simply ignore it — must obtain Sufficient Appropriate Audit Evidence (SAAE) to confirm the item is truly anomalous before treating it as such.
If confirmed as anomaly → do not project it to the full population; treat it separately.

Worked example

### Example 1

Replacing a Sample Item:

The auditor is testing manual sales invoices. One selected item is invoice #501, but it turns out #501 was a computerised EDI invoice — the manual vouching procedure cannot be applied.

Before replacement: auditor checks whether #501 itself has a misstatement (e.g., wrong amount). If a misstatement is found, it is recorded.
A replacement item (e.g., #502, the next manual invoice) is selected and the procedure is applied.
If #502 also cannot be tested by any procedure → treat it as a misstatement.

### Example 2

Projecting Misstatements:

Auditor tests 50 sales invoices from a population of 500. In the sample, 4 invoices are misstated by a total of ₹40,000.

Projected misstatement on population = (₹40,000 ÷ 50) × 500 = ₹4,00,000.

This projected misstatement is then compared against tolerable error to evaluate whether the population is acceptable.

### Example 3

Anomaly — Establishing SAAE:

In a sample of 60 purchase transactions, one item shows a large misstatement because the supplier accidentally double-invoiced (a one-time clerical error, confirmed by the supplier in writing and already reversed in the subsequent period). The auditor obtains the supplier's written confirmation and the credit note as SAAE → classifies the item as an anomaly → does not project it to the full population.

⚠️ Common exam mistakes

Automatically replacing a sample item without first checking whether it contains a misstatement — the original item must still be evaluated before replacement.
Projecting a misstatement across the entire population when the common feature points to only a sub-segment (e.g., projecting an export-debtor error across all debtors instead of only export debtors).
Treating an anomaly as zero impact without obtaining SAAE — the auditor must prove it is anomalous, not simply assert it.
Failing to apply an AAP and instead treating the item as a misstatement too quickly — AAP must be genuinely attempted first.

Reference:

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Performing Audit Procedures on Sample, Replacing Items, and Projecting Misstatements

Worked example

⚠️ Common exam mistakes