Behind the Numbers: Insights into Large Audit Firm Sampling Approaches

Abstract

Changes in the audit industry after Sarbanes-Oxley have potentially changed the nature and extent of audit sampling in the largest accounting firms. However, little academic evidence exists on current audit sampling policies in place at the largest accounting firms (Elder et al. 2013). As such, we administer an extensive, open-ended survey to the national office of the Big 4 and two other international accounting firms regarding their firm’s audit sampling policies. We find variation among the largest auditing firms’ policies in their use of statistical and nonstatistical sampling methods and in inputs used in the sampling applications that could result in different sample sizes. Sampling experts’ internal reviews indicate that responding to and resolving identified misstatements is one of the biggest difficulties that audit engagement teams face when using sampling techniques. Finally, we present evidence that some firms have significantly changed their approach to revenue testing due to PCAOB inspections. This evidence provides important insights into current sampling policies and presents opportunities for future research.