The Art of the Sample

Ok, maybe not the most creative title, but it does explain the premise of this story.  My internal audit group is in the process of beginning our review of FDIC Cash Disbursements operations.  As you may imagine, attempting to review each transaction would require a level of time and patience no reasonable person would commit to.  Hence comes sampling.  As you may recall from your Statistics class the idea is a randomly selected sample can serve as a representation of the entire population.  Or in this case transaction batch.  It will cover the scope of our audit thereby enabling us to draw inferences about the population.   There is an “Art” to sampling because of the need to determine the size of a sample.

Additionally, as the case with typical audits, we will test the internal controls (IC) in place.  Comparable to Sarbanes Oxley Section 404, but not nearly as extensive, the objective would be to determine if FDIC personnel has designed and operated within their control environment.  This is done to (1) ensure management is in compliance with protocols governing IC and (2) to enable us to have greater confidence in using sampling.  A general rule of thumb for those of you aspiring accountants/auditors who have yet to be graced by the lectures of Professor Jacoby & Silva (that’s not sarcasm, they’re wonderful professors), the better the client’s internal controls, the lower the audit risk and the lower amount of substantive testing (i.e. sampling) needed.  Conversely, if the client has below average internal controls then there is a greater audit risk and a greater need for additional substantive testing (i.e. sampling).  The Review should be active for the duration of my internship.

The experience is particularly exciting because, it perfectly compliments my internship experience during my time at Ernst & Young last summer.  During that time I was only able to calculate the sample size which, FYI is based on associated risk (i.e. the risk associated with auditing cash are different than that of property, plant & equipment (PP&E), size of the population, etc.  This time around, I not only had the opportunity to participate in the sample size process, but I’m also aiding in selection and testing process.

Overall, the experience has been all that I’ve expected and more.