Attribute Sampling

Attribute sampling is a statistical process typically used in audit procedures to analyze the characteristics of a given population. Attribute sampling is often used to test whether a company's internal controls are being followed.

For example, an auditor may want to test the effectiveness of a company's rule that purchases of more than $10 must be authorized with a purchase order. Since examining every vendor invoice over $10 is often not feasible, an auditor will take a sample. The sample must be large enough to provide an accurate picture of the entire population of purchase orders over $10, but that accuracy is always a matter of degree and must be tested. In examining the sample, the auditor may discover that 5% of the vendor invoices over $10 were not authorized by a purchase order.

This 5% noncompliance rate may be acceptable or not, depending on the rate the auditor has set as tolerable. If the auditor believes a 3% rate is tolerable, 5% would appear to be too high. This would indicate the company's internal controls were not effective, and additional investigation by the auditor would be necessary. It might also indicate that additional controls are necessary in the future.

But 5% may be acceptable. Because the auditor has taken a sample and was not able to examine the entire population of vendor invoices, he/she must do additional analysis. This is because any time a sample is taken, sampling error occurs. That is, when a sample is taken, it is likely that the values in the sample do not match those of the entire population from which the sample was taken. So, if additional analysis shows that the margin of error is 2.5%, then a 5% noncompliance rate would be acceptable because the confidence interval is 5% plus or minus 2.5%, and the tolerable 3% rate falls within that range.