Effective auditing relies upon efficiently gathering the evidence required to provide reasonable assurance over financial information. As businesses have become ever more transactional, auditors have become increasingly reliant on sampling as their primary source of evidence.
Techniques such as Substantive Analytical Review have come under increasing scrutiny as they are challenging to perform in sufficient granularity. Testing to rely on controls is not always possible in entities with less formalised processes. Sampling has gradually become the default approach adopted by auditors. But with Audit Data Analytics (ADAs) now becoming more accessible to firms outside of the Big 4, what is the impact for the applicability of sampling?
ADAs can firstly be used to enhance sampling methodologies. Sampling methodologies can be automated, making it faster and easier for the auditor to ensure principles such as testing all material items or calculation of sample size are performed correctly every time. Documentation templates can be automatically produced with the necessary detail to meet audit standards, saving time, improving consistency and assisting the review process.
ADAs can also help auditors in some of the fundamental requirements supporting sampling, such as analysis of a population to ensure that items are homogenous or the segmenting of populations.
More advanced ADAs go beyond simply analysing the characteristics of the population and instead analyse every transaction individually. These techniques offer the opportunity to obtain 100% coverage over a balance, generating high quality audit evidence.
These techniques can actually be more efficient than traditional sampling as anomalies can be segregated for review. Evidence can then be obtained over expected transactions through work performed elsewhere. This allows less time to be spent on transactional testing and more on judgemental balances, or on adding value to the client.
Sampling continues to be a valid approach in some areas, however auditors should consider whether better quality evidence could now be obtained more effectively and efficiently using ADAs.
Where sampling remains the preferred option, maximising the use of technology to facilitate the correct execution of sampling methodologies and overall monitoring of compliance will drive significant efficiency and quality gains.