Stop or Go Sampling
Stop or Go Sampling is a decision-making technique used in the auditing process. It’s primarily employed in situations where auditors want to determine whether a population (like a set of financial transactions) contains a high number of errors. Instead of examining the entire population, auditors will sample a subset. Based on the results from this subset, they decide whether to stop (and conclude about the entire population) or to continue (and possibly expand) their sampling.
The idea is to use a minimal amount of sampling to ascertain if a more in-depth examination is warranted. This can save auditors significant time and resources if they can quickly determine that the number of errors is acceptable or minimal.
How Stop or Go Sampling Works:
- Determine Initial Sample Size: Auditors select an initial sample size based on their needs, the total population, and the acceptable level of errors.
- Examine Initial Sample: The auditors then examine this sample for errors.
- Decision Point:
- Stop: If the number of errors found is below a predetermined threshold, the auditors might decide to stop the sampling. They may conclude that the overall error rate for the population is likely within acceptable limits.
- Go: If the number of errors found meets or exceeds the threshold, the auditors will likely continue their examination, possibly increasing the sample size. This is done to get a more accurate estimate of the total errors in the population.
The “Stop or Go” approach is particularly useful when auditors believe there is a low occurrence of errors but want to confirm this belief. If they can establish this quickly with a small sample, there’s no need for further, more extensive testing.
Example of Stop or Go Sampling
A detailed fictional scenario to better illustrate the “Stop or Go Sampling” method in action.
Scenario: Whimsical Watches Co. Inventory Audit
Background:
Whimsical Watches Co. produces hand-crafted watches and sells them globally. At the end of the fiscal year, they have a record of 10,000 watches in their inventory. The company hires an external auditor, Ms. Emily, to verify the accuracy of this inventory record.
Objective:
Emily wants to confirm that the physical count of the watches aligns with the recorded inventory without checking all 10,000 watches. Given the company’s robust internal control systems, she believes discrepancies would be few.
The Stop or Go Sampling Process:
- Determine Initial Sample Size: Emily decides to start with a sample of 100 watches, which is 1% of the total inventory.
- Examine Initial Sample: She conducts a physical count of these 100 watches and checks if their records match the company’s inventory system.
- Decision Point:
- If Emily finds zero discrepancies in the initial sample, she’ll conclude that the entire inventory is likely accurate and will stop her examination.
- If she finds more than two discrepancies, she’ll expand her sample size and continue the examination.
Outcome:
Upon counting and matching the records of the initial 100 watches, Emily finds only one discrepancy. Given her criteria, this discrepancy rate is within her acceptable range.
Conclusion:
Emily decides to “Stop” and concludes that the overall inventory record of Whimsical Watches Co. is likely accurate, given the low error rate found in the initial sample. By using the “Stop or Go Sampling” method, Emily efficiently reached a conclusion without the need to examine a larger portion of the 10,000 watches, saving both time and resources.
This example showcases how auditors can use the Stop or Go Sampling technique as an effective tool when they anticipate a low occurrence of errors and want a quick verification of their assumption.
