Audit Q2A&B

QUESTION 2

a. Briefly explain why auditor is using audit sampling in accumulation of audit evidence?

The auditor audit sampling to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected. The selection and evaluation of less than 100 percent of the population of audit relevance such that the auditor expects the items selected (the sample) to be representative of the population and, thus, likely to provide a reasonable basis for conclusions about the population. In this context, representative means that evaluation of the sample will result in conclusions that, subject to the limitations of sampling risk, are similar to those that would be drawn if the same procedures were applied to the entire population. The auditors do not normally examine all the information available to them; it would be impractical to do so and using audit sampling will produce valid conclusions. Auditor is using audit sampling in accumulation of audit evidence 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.

b. Explain representative samples.

A representative sample is one in which the characteristics in the sample of audit interest are approximately the same as those of the population. Two things cause a sample to be non-representative is non-sampling risk and sampling risk.

Non-sampling risk is the risk that the audit tests do not uncover existing exceptions in the sample. Two causes of this risk are auditor failure to recognize exceptions and inappropriate or ineffective audit procedures.

Sampling risk is the risk that an auditor reaches an incorrect conclusion because the sample is not...