Audit Inquiry – Sample Selections
Our external CPA firm is requesting an excessive amount of sample selections during the Audit. They’ve chosen to sample at the customer level for Accounts Receivable, rather than focusing on individual invoices. With 135 selections made, they’re covering 80% of the total AR based on customer balances categorized as ISI (individually significant items) instead of analyzing individual invoices. This approach seems excessive, doesn’t it?
One response
It sounds like you have some valid concerns regarding the sampling approach being used by the external CPA firm. Sampling at the customer level rather than the invoice level does raise some questions, especially given the large number of selections they are making for Accounts Receivable (AR).
Here are a few points to consider:
Materiality and Risk Assessment: The CPA firm’s rationale for using customer balances could be linked to a materiality threshold or risk assessment indicating that certain customers represent a significant portion of the overall AR. However, it’s essential to ensure that this approach truly captures the key risks associated with individual invoice transactions.
Sampling Methodology: Typically, sampling at the invoice level provides a more granular view of the transactions which might reveal issues that aren’t apparent at the customer level. It might be worth discussing with the CPA firm their reasoning for their methodology and whether they’ve considered the potential for misstatement at the invoice level.
Communication: Open communication with the CPA firm is crucial. Bringing your concerns to their attention and discussing the implications of their sampling choices on the Audit conclusions can lead to a more tailored and effective Audit approach.
Industry Standards: If you believe that their sampling approach deviates significantly from accepted auditing standards or practices, it might also be worth referencing guidance from relevant auditing standards (like GAAS or PCAOB).
Negotiation: If you feel that the sampling is excessive and not aligned with a cost-benefit analysis, you may want to negotiate a more reasonable sample size that still meets Audit objectives without overwhelming the process.
Ultimately, it’s about finding a balance that allows for a thorough audit while maintaining efficiency. Engaging in a constructive dialogue with the CPA firm could help in reaching a more effective sampling strategy.