Audit sampling involves applying an audit procedure to less than 100 percent of the population for

the purpose of evaluating some characteristic of the population. The fact that an audit involves

sampling is noted in the scope paragraph of the auditor's report, which contains the phrase "An

audit includes examining, on a test basis." When an auditor uses sampling, an element of

uncertainty enters into the auditor's conclusions.

Required:

a) Explain why auditor's still use sampling techniques despite the uncertainties that are

inherent in audit conclusions drawn on samples.

b) As an auditor what will be your justification for using statistical sampling instead of nonstatistical

sampling in auditing account receivables. Give three justifications

c) Outline five quality control procedures the auditor may implement to ensure that the

auditors work is of standards.

d) You overheard the following comments during a conversation between Auditor Kaakaba

and Auditor Kasanga about a specific sampling application.

i. "Using non-statistical sampling is so much easier than using statistical sampling.

Statistical sampling requires far too many judgments. Under non-statistical

sampling, I can just pick items, evaluate them, and make my decision."

ii. "I wish non-statistical sampling were allowable in generally accepted auditing

standards audits. In some cases, the additional time required by statistical sampling

just isn't worth the benefits."

iii. "Once we control the sampling risk, we're home free. Assuming we select a

representative sample, there's nothing else that we need to worry about."

iv. "Be careful if you try to set sampling risk at too low a level. You will need to select

more items, which will increase the amount of audit time."

v. "Those transactions with Wimbey are always so difficult to audit. Let's exclude

them from our sampling frame. We can pick other items and have a sufficiently

large sample to meet generally accepted auditing standards."

vi. "I'm about to perform a walkthrough on Flushing's processing of sales transactions

to understand their nature. What level of sampling risk should I consider in planning

my sample of transactions?"

Required:

With reference to appropriate professional standards and practices state whether each of the

above statements is valid or not a valid and why you think so. Your responds must be very

brief.

e) The following is a set of situations that may or may not involve sampling.

1. An auditor is examining loan receivables at a local bank. The population of loans

contains two strata. One stratum is composed of 25 loans that are each greater than

$1 million. The second stratum contains 450 loans that are less than $1 million. The

auditor has decided to test all loans greater than $1 million and 15 loans less than $1

million.

2. Assume the same facts as number 1 except that the auditor decides to apply

analytical procedures to the second stratum of loans.

3. An auditor has haphazardly selected 30 sales invoices to be examined for proper

pricing of the goods purchased by the customer.

4. The prepaid insurance account is made up of four policies that total $45,000. The

auditor has decided that this account is immaterial and decides that no policies will

be examined.

Required:

Indicate whether each of the above situations involve no audit sampling, statistical sampling, or

non- statistical sampling and why you think so.