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 statistic
al 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:
1)Sampling can be defined as the process of examining only part of a set of data/population, sufficient to gain reasonable assurance regarding the entire data/population. Auditors use sampling mainly because they are not seeking absolute certainty – instead, they are looking for reasonable assurance.
2)Sampling risk is actually occurs when the auditor applies the procedures to the sample to judge the entire population. Sampling risk is the risk that the auditors opinion would have been different if the procedures were applied to the entire population of the data.
3)Non-sampling risk is the risk that despite having selected an appropriate sample, the auditors will arrive at wrong conclusion. If the auditor has chosen right sample and still makes the faulty conclusion due to other reasons, it is known to be a Non sampling risk. Auditors here have mistakenly used the inappropriate procedure for judging the entire sample which leads him to make the non-sampling risk.
4)Statistical versus non-statistical sampling
Statistical sampling allows each sampling unit to stand an equal chance of selection. The use of non-statistical sampling in audit sampling essentially removes this probability theory and is wholly dependent on the auditor's judgment.
5)the standard recognises that auditors will not ordinarily test all the information available to them because this would be impractical as well as uneconomical. Instead, the auditor will use sampling as an audit technique in order to form their conclusions. It is important at the outset to understand that some procedures that the auditor may adopt do not involve audit sampling, 100% testing of items within a population, for example. Auditors may deem 100% testing appropriate where there are a small number of high value items that make up a population, or when there is a significant risk of material misstatement and other audit procedures will not provide sufficient appropriate audit evidence. However, candidates must appreciate that 100% examination is highly unlikely in the case of tests of controls; such sampling is more common for tests of detail (ie substantive testing).
The use of sampling is widely adopted in auditing because it offers the opportunity for the auditor to obtain the minimum amount of audit evidence, which is both sufficient and appropriate, in order to form valid conclusions on the population. Audit sampling is also widely known to reduce the risk of ‘over-auditing’ in certain areas, and enables a much more efficient review of the working papers at the review stage of the audit.
hope you understand...