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QUESTION 3 - AUDIT SAMPLING (20 MARKS) (Suggested Time: 36 Minutes) PART A: SAMPLING APPROPRIATENESS (5 marks) An Audit Assistant made the following conclusion about the work performed during the course of an audit. 1. The Assistant selected a sample of 30% of the trade creditors' balances to verify the audit assertion of completeness. All balances selected were traced to supporting documentation and no discrepancies were found. The following conclusion was noted: No discrepancies found from testing performed; trade creditor is fairly stated. 2. The Assistant performed a test of controls on purchases. Of a sample of 50 purchases, 4 purchases did not comply with the control procedures as laid down. This gave a sample deviation rate of 8%. The following conclusion was noted: The deviation rate of 8% is below the level of 10% defined to be material in the accounting standards. Therefore, controls over purchases can be relied upon. (Adopted from Leung et al. 2011, p.568) Required: Evaluate the appropriateness of the Assistant's samples and evaluation of the sampling results. (5 marks) PART B; EVALUATING SAMPLE RESULTS (15 marks) You are the audit team leader for the audit of Sumita Jewellers Limited, a jewelry retail company that has four branches in Fiji. For the confirmation of account receivable balance as at 31" December, 2018, a debtors' circularisation was performed on 18" February, 2019. For the purpose of sample selection, the Assistant stratified the debtor's population into 3 strata as shown below: Stratum No. Stratum Details ($) No. of Debtors Amount (S) 30,000 and over 10 1,750,000 5000 -29,999 100 4,900,000 Less than 5,000 130 1,550,000 The stratification was based on the dollar value of debtors and was consistent with the audit firm's normal approach. In performing the circularisation, the Assistant selected 60% of the debtors from stratum 1, and a systematic selection approach was used for strata 2 where 20% of the debtors were selected. Given the fact that in stratum 3, the amounts were less than $5,000, a haphazard sample of 7 debtors was selected. No errors were found in stratum 1 and 3 whereas 12 debtors balances were overstated in stratum 2 by $400,000. The errors were lower than the materiality level; therefore, the audit assistant concluded that no further work needed to be performed. Required: Critically evaluate the Assistant's sample selection and evaluation of results. Discuss each stratum separately. (Hint: your answers should refer to ISA 530 with reference to the selection of specific items). (15 marks)