What should the sample size for testing be based on?

Determining the sample size for testing in an audit context is fundamentally influenced by the potential risk associated with the area being evaluated. This approach ensures that the auditor focuses on areas that may have significant misstatement or control weaknesses, which might adversely influence the overall audit result. By assessing risk, auditors can identify which areas require more rigorous scrutiny and determine an appropriate sample size to draw conclusions with confidence.

When the potential risk is higher, larger sample sizes may be necessary to achieve the desired level of assurance. Conversely, if the risk level is lower, a smaller sample might suffice. This risk-based approach prioritizes audit resources effectively and enhances the relevance and reliability of the findings gathered from the sampling process.

In contrast, simply basing sample size on the total number of transactions processed may overlook areas of higher significance. The average revenue of the organization or the geographical diversity of clients could provide additional context, but they do not directly determine the essential risk level that should guide sample selection. Focusing on risk ensures that auditors maintain a robust and effective approach to sampling that aligns with the overall goal of the audit.