How to Use Sampling in Forensic Accounting

Sampling allows a efficient statistical approach to checking the accuracy of colossal amounts of data.

Sampling, in reference to forensic accounting, is a process in which a section of a larger portion of accounting data is checked to ascertain accuracy and reliability. This is done primarily during an audit or post-audit phrase and is an efficient way to check the books without going through mountains of data. This practice is used to reach a reasonable assurance that the books are free from error or fraud.

Instructions

1. Determine the statistical sample size for sampling the financial data. Find the population size of the data, and ensure the statistical sample is proportional to the population. Use the resulting formula to reach the amount of sample journal entries to check. Use different statistical sizes for different types of accounts, such as assets and long-term liabilities.

2. Use the resultant statistic size to pull a random amount of entries to check for accuracy and reliability. Follow the entry using its audit trail to trace its source and determine its tangible or intangible existence to rule out fraud.

3. Check the sample entries for mathematical accuracy. Reapply accounting principals, and calculate the balances of accounts affected to ensure the reliability of the entries -- this phase rules out error. Complete each random entry repeating Steps 2 and 3.

Tips & Warnings

• Sampling in forensic accounting is an advanced auditing procedure and should only be attempted by someone with adequate accounting or auditing knowledge.

• After a statistical sample is determined, the usage of determining the randomness in which the entries are selected may be required to ensure a truly "random" selection to sample. This requires a separate statistical formula to calculate and apply.

References

• Stat Trek: Statistics Tutorial--Sampling Size
• Goliath: Sampling Practices of Auditors in Public Accounting, Industry, and Government