1 . briefly explain why auditors utilize audit sampling?
2 . discuss what meant by sampling risk ?
3 . discuss causes of non - sampling risk . Also explain ways the auditors can control non sampling risk ?
4 . describe the difference between statistical and non- statistical sampling in terms of the sampling selection used and quantification sampling risk ?
5 . explain and given an example for sample selection methods commonly associated with statistical audit sampling ?
Answers
Answer to the given questions
Explanation:
The given questions have been answered as per the Auditing standards and guidelines issued by the Auditing and Assurance Board(AASB).
Answer to Q1)
As per the provisions of SA 530,Auditors utilize audit sampling because of the following reasons:
i) Auditors usually don't have enough time for detailed 100% examinations.
ii) Number of Transactions and Balances are generally very high.
iii) Most items are identical.
iv) If, on basis of compliance procedures,it is concluded that the internal control system is very effective,there is no need for 100% examination.
Answer to Q2)
Sampling risk is the risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population(items from which sample was taken) were subjected to the same audit procedures.
It may arise from the possibility that the Auditor's conclusion based upon sampling may be different from conclusion that would have been reached if the same audit procedures were applied to the entire population.It is always in Sampling and if the acceptable sampling risk is low,large sample is needed concluding that the Risk % and Sample size are inversely related.
Answer to Q3)
Non-Sampling risk refers to the risk that the auditor reaches an erroneous conclusion for any reason not related to the sampling risk. Examples of non-sampling risk can be use if inappropriate audit procedures, or misinterpretation of audit evidences, failure to recognize a misstatement or deviation, fake documents/evidences provided by the client.
Auditors are able to control non-sampling risks since they are easy to identify and correct.They,once identified, can be rectified easily.
Answer to Q4)
Differences between Non-Statistical and Statistical Sampling:
Non-Statistical Sampling or Judgemental Sampling: Sample size and composition are decided on the basis of auditor's experience.This is a traditional method of sampling.It has the following advantages and disadvantages-
Advantages:i) Easy to Operate.
ii) Understandable by Audit staff with little expertise.
iii) Rotation of emphasis is done.
iv) Normally Year end transactions are checked.
Disadvantages: i)Unscientific method.
ii)Personal Biasness is possible,
Statistical Sampling: In this sampling,sample is chosen by applying certain mathematical and statistical devices. It is generally based on probability theory.
Advantages: i) More scientific and accurate
ii) No personal Biasness.
iii) Results of sample can be evaluated and projected in a more reliable way.
iv) Widely accepted.
Disadvantages: i) Complex to operate.
ii) Not suitable for audit staff having no knowledge of statistical techniques.
iii) May be time consuming.
Answer to the given questions
Explanation:
The given questions have been answered as per the Auditing standards and guidelines issued by the Auditing and Assurance Board(AASB).
Answer to Q1)
As per the provisions of SA 530,Auditors utilize audit sampling because of the following reasons:
i) Auditors usually don't have enough time for detailed 100% examinations.
ii) Number of Transactions and Balances are generally very high.
iii) Most items are identical.
iv) If, on basis of compliance procedures,it is concluded that the internal control system is very effective,there is no need for 100% examination.
Answer to Q2)
Sampling risk is the risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population(items from which sample was taken) were subjected to the same audit procedures.
It may arise from the possibility that the Auditor's conclusion based upon sampling may be different from conclusion that would have been reached if the same audit procedures were applied to the entire population.It is always in Sampling and if the acceptable sampling risk is low,large sample is needed concluding that the Risk % and Sample size are inversely related.
Answer to Q3)
Non-Sampling risk refers to the risk that the auditor reaches an erroneous conclusion for any reason not related to the sampling risk. Examples of non-sampling risk can be use if inappropriate audit procedures, or misinterpretation of audit evidences, failure to recognize a misstatement or deviation, fake documents/evidences provided by the client.
Auditors are able to control non-sampling risks since they are easy to identify and correct.They,once identified, can be rectified easily.
Answer to Q4)
Differences between Non-Statistical and Statistical Sampling:
Non-Statistical Sampling or Judgemental Sampling: Sample size and composition are decided on the basis of auditor's experience.This is a traditional method of sampling.It has the following advantages and disadvantages-
Advantages:i) Easy to Operate.
ii) Understandable by Audit staff with little expertise.
iii) Rotation of emphasis is done.
iv) Normally Year end transactions are checked.
Disadvantages: i)Unscientific method.
ii)Personal Biasness is possible,
Statistical Sampling: In this sampling,sample is chosen by applying certain mathematical and statistical devices. It is generally based on probability theory.
Advantages: i) More scientific and accurate
ii) No personal Biasness.
iii) Results of sample can be evaluated and projected in a more reliable way.
iv) Widely accepted.
Disadvantages: i) Complex to operate.
ii) Not suitable for audit staff having no knowledge of statistical techniques.
iii) May be time consuming.