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 auditors 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 auditors conclusions. Required: a) Explain why auditors 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 isnt worth the benefits. iii. Once we control the sampling risk, were home free. Assuming we select a representative sample, theres 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. Lets exclude them from our sampling frame. We can pick other items and have a sufficiently large sample to meet generally accepted auditing standards. vi. Im about to perform a walkthrough on Flushings 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.

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