## SA 530 – Sampling Plan, Design & Sample Size

### Sampling Process: Two Types of Tests

Test Type	Purpose
Test of Controls (TOC)	Identify deviations from internal control procedures
Test of Details (TOD)	Identify misstatements in account balances and classes of transactions

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### Factors Considered for a Sampling Plan

Before designing a sample, the auditor considers:

1. Size of the organisation

2. State of internal controls

3. Adequacy and reliability of books of account

4. Tolerable error range (how much deviation/misstatement is acceptable)

5. Degree of desired confidence

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### Sampling Design: Factors to Consider

When choosing a sample design, consider:

Specific purpose – what procedures or combination of procedures will achieve the objective?
Clear understanding of what constitutes a deviation (for TOC) or misstatement (for TOD)
For TOC → Assessment of the expected rate of deviation
For TOD → Assessment of expected misstatement

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### Factors Influencing Sample Size

#### Test of Controls (TOC)

Factor	Effect on Sample Size
More assurance required	Increases
Greater extent of controls being tested	Increases
Increase in tolerable rate of deviation	Decreases
Increase in expected rate of deviation	Increases
Change in number of sampling units in population	No effect

#### Test of Details (TOD)

Factor	Effect on Sample Size
More assurance required	Increases
Greater use of other substantive procedures	Decreases
Increase in tolerable misstatement	Decreases
Higher the Risk of Material Misstatement (ROMM)	Increases
Change in number of sampling units in population	No effect

> Key insight: For both TOC and TOD, population size by itself does NOT affect sample size. What matters is the level of assurance needed and the risk/tolerance parameters.

Worked example

### Example 1

Example – TOC Sample Size:

An auditor is testing the control that all purchase orders above ₹1 lakh require dual approval. The tolerable rate of deviation is 5%. The expected rate of deviation based on prior year is 2%. Sample size = moderate (say, 60). If management had increased the tolerable rate to 8%, the auditor could reduce the sample size because a higher rate of deviation is acceptable.

### Example 2

Example – TOD Sample Size:

Auditor is testing debtors for overstatement (ROMM is assessed as high due to aggressive revenue recognition culture). The auditor uses more sampling and fewer analytical procedures, pushing sample size up. If tolerable misstatement is ₹5 lakh vs ₹2 lakh, the ₹5 lakh threshold allows a smaller sample because larger errors are needed before the conclusion changes.

### Example 3

Example – Population Size Has No Effect:

Company A has 500 invoices; Company B has 50,000 invoices. Both have the same ROMM, tolerable misstatement, and expected error rate. The sample sizes for both will be approximately the same — audit sampling theory does not require proportionally larger samples for bigger populations.

⚠️ Common exam mistakes

Believing that a larger population always requires a larger sample — sample size is driven by risk, tolerance, and assurance level, not population count.
Confusing tolerable rate of deviation (used in TOC) with tolerable misstatement (used in TOD) — they are different metrics for different test types.
Thinking higher tolerable error always reduces sample size — it does, but only if expected error is still comfortably below the tolerable level; if expected error approaches tolerable error, sample size must increase.
Ignoring the effect of other procedures on TOD sample size — if strong analytical procedures are already applied to the same assertion, the sample for TOD can be reduced.

Reference:

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SA 530 – Sampling Plan, Sampling Design, and Factors Influencing Sample Size

Worked example

⚠️ Common exam mistakes