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#1920306 - 05/06/14 01:29 PM audit sampling methods
happyauditor Offline
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Would anyone be willing to share/describe how they determine their audit sample sizes? Also please include primary regulator and asset size.

Examples of information I am looking for:

Do you rely on each individual auditor's judgement to determine sample size?

Set specifc standards/guidelines such as if the item is high risk and a daily occurrence, review 25 items, medium risk, review 15 items, low risk, process review only.

Statistical sampling methods? If using statistical sampling, what parameters do you use (95% confidence, 5% anticipated error rate, 1% expected error rate?)

Do you use stop and go sampling?

etc.
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#1920325 - 05/06/14 02:23 PM Re: audit sampling methods happyauditor
osucpa Offline
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Bank Size - 1.5 billion
Sample size based on level of risk.
We generally use judgmental sampling

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#1920387 - 05/06/14 04:03 PM Re: audit sampling methods osucpa
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Judgmental based on risk.

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#1920421 - 05/06/14 05:19 PM Re: audit sampling methods happyauditor
happyauditor Offline
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osucpa and cornfed turtle

Do you give your auditors guidance, for example, minimums and maximums?

For example, if 1,000 consumer mortgage loans were originated in the prior 12 months and you were conducting an annual audit, how many loans would you include in your sample for an underwriting review? For a review of disclosures? let's assume low risk for underwriting and moderate risk for disclosures due to all the recent regulatory changes.

Have you ever been criticized (or questioned) from examiners regarding how you determine the sample size?
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#1920521 - 05/06/14 08:40 PM Re: audit sampling methods happyauditor
osucpa Offline
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Happy

Based on your information above, I would select a sample of 25 for disclosure purposes. They would be taken throughout the year. Every now and then an examiner will question me about it but so far I have been able to justify it. My experience is generally a bell shaped curve will naturally play out. During an audit about 4 years ago, an area manager had the same inquiry, and spent hours trying to disprove our sample methodology and ultimately was not able to.

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#1920590 - 05/07/14 02:04 AM Re: audit sampling methods happyauditor
rlcarey Offline
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Disclosures are also usually produced through documentation platforms which equates to the fact that they are usually either all wrong or you might have isolated operator errors. No one gets too excited about those. It is the systemic issues you are looking for.
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#1920637 - 05/07/14 02:04 PM Re: audit sampling methods osucpa
RR Jen Offline
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Originally Posted By: osucpa
Reg - OCC
Bank Size - 1.5 billion
Sample size based on level of risk.
We generally use judgmental sampling


$450 million...we have the same methodology. One the loan disclosure example...we have a central doc prep but multiple lenders/loan assistants. I want to be sure my sample includes loans from each location, not just the main office that might make the majority of the loans. The biggest problems I've found have been in the outlying areas. The OCC has not had an issue with this process.
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#1920688 - 05/07/14 02:47 PM Re: audit sampling methods happyauditor
happyauditor Offline
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Thank you for your responses.

rlcarey, I agree if one is looking at the content of diclosures you would review one (assuming all produced via a system platform). But if performing a disclosure review to ensure proper timing of providing the disclosure to the borrower (based on evidence of date of dislcosure) or accuracy of disclosure where there are manual input items that may be prone to error, I think you would need to select a sample. Do you agree?
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#1920725 - 05/07/14 03:17 PM Re: audit sampling methods happyauditor
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#1920780 - 05/07/14 04:40 PM Re: audit sampling methods happyauditor
happyauditor Offline
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Thanks EdAudit. I looked at that. We actually have a statistical sampling tool that we use that gives similar results (attribute sampling using statistical variables [percent reliability desired, maximum tolerable error rate, and anticipated error rate], random number generation or nth number generation.) AICPA guidance tables also give similar results. My problem lies in the fact that the sample sizes from these statistical tools are too big for large populations for annual audits. For example, for an annual audit, if I have a population of 5,000 (scope of population is from prior audit to current audit, or prior 12 months), the sample size generated by the aforementioned tool is 192 items (similar with other tools and AICPA guidance based on 90% reliability which is what the aforementioned tool says uses).

So far non one responded they use statistical sampling methodology, although I did not get many responses. I am also asking personal contacts I have and still, no one is using statistical sampling methods (only received 2 responses so far). All are saying judgement based on risk, and I am seeing around 25 as the "max" being used.
Last edited by happyauditor; 05/07/14 04:41 PM.
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#1921586 - 05/08/14 10:08 PM Re: audit sampling methods RR Jen
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Originally Posted By: RR Jen
Originally Posted By: osucpa
Reg - OCC
Bank Size - 1.5 billion
Sample size based on level of risk.
We generally use judgmental sampling


$450 million...we have the same methodology. One the loan disclosure example...we have a central doc prep but multiple lenders/loan assistants. I want to be sure my sample includes loans from each location, not just the main office that might make the majority of the loans. The biggest problems I've found have been in the outlying areas. The OCC has not had an issue with this process.


Same size as Jen.
Any samples used are auditor judgement.
Except:
1. Confirmations (sample size determined by external auditor)
2. 2nd market loans. We sell majority of loans to Freddie. Sample size is determined by them - 10% of the number of loans originated. We do this monthly to keep up.
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#1921622 - 05/09/14 12:43 PM Re: audit sampling methods happyauditor
happyauditor Offline
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Thanks MamaBear

Can anyone in a mid-size bank (assets of $10B to $50B) or larger weigh in?
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#1928911 - 06/03/14 04:34 PM Re: audit sampling methods happyauditor
Rosie Offline
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Does anyone have an example of an internal audit report that they can share. Would like to see how everyone is handling the assignment of the audit ratings. I would like to try to keep it simple: Outstanding, Satisfactory, needs improvement and unsatisfactory. Not sure if the rating should be placed in the body of the report?

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#1929391 - 06/04/14 04:53 PM Re: audit sampling methods happyauditor
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Our rating used to be right at the top of the report, underneath the audit area, date, and who the report was issued to. We included the current rating and the previous rating.

For whatever reason, we no longer issue ratings, but risk levels, high, medium, or low, with each finding also being risk rated.
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#1929393 - 06/04/14 04:56 PM Re: audit sampling methods happyauditor
rlcarey Offline
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That is how a lot of audits are going now. The Board and Audit Committee need to focus on the individual findings and the risks they present rather than any arbitrary rating assigned to the overall audit. Many audits are completed across many functional areas at the same time and an "audit report" rating really has no real meaning anymore.
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#1929525 - 06/04/14 08:08 PM Re: audit sampling methods happyauditor
happyauditor Offline
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We include an overall rating, which is placed in the executive summary of the audit report after an overview of the area and objectives and scope of the audit. FRB recently made us include ratings of individual audit findings as well. These are indicated next to each finding.

(When I say "made us", I literally mean, "made us", in the form of an MRA.)
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#1936350 - 06/27/14 07:06 PM Re: audit sampling methods happyauditor
NWBankerGal Offline
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I work for a $22 billion bank and we are regulated by the FDIC. Our sampling methodology is to select 20% or 30 items from our population (usually 6 months), whichever is lower. We always follow this methodology. From there, we typically perform judgmental sampling in picking out those 20% or 30 items for testing. The only time we stray from this is when there is a system control involved; we will test a sample of 1 to ensure that our automated control is working.

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#1937926 - 07/03/14 08:37 PM Re: audit sampling methods happyauditor
Philly Fan Offline
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I work for a $12 billion bank and we use various methods for selecting our sample (i.e. haphazard, judgemental, statistical, stratified) how the size is formally defined and determined by the type of review (SOX vs. Audit)and the frequency of the control and the level of risk.

For controls thatís are performed daily, multiple times a day, or on an ad-hoc basis the sampling size will be the lesser of 10% of the population with a minimum of 5 and a maximum of 25.

For controls performed on a monthly and quarterly basis the sample size will be 3 and 2 respectively, which will be prorated based on the period of coverage.

For controls performed on a weekly and biweekly basis the sample size will be 6 and 5 respectively, which will be prorated based on the period of coverage.

Our sampling guidance has been reviewed and okayed by the FRB and OCC.

It should be noted that we also have guidance around when,why, and how to expand samples based on exceptions.

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#1941549 - 07/16/14 04:00 PM Re: audit sampling methods happyauditor
happyauditor Offline
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Thanks for the feedback, it is greatly appreciated and helpful.
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