Sampling and nonsampling risk for substantive testing Fred

Hutchinson is auditing revenue for Urban Homes, a home builder in California. Urban Homes usually

has between 450 and 600 home construction projects going at any point in time, for between 300 and 500

customers. Urban Homes recognizes revenue on a percentage-of-completion basis. Fred has to determine

the appropriateness of revenue recognition for Urban Homes. Fred has previously tested controls and

assessed control risk as moderate.

Required

a. What population(s) would be relevant to Fred's substantive tests of revenue recognition?

b. Explain the potential implications of sampling risk for the audit of revenue recognition.

c. What possible nonsampling risks exist in this case?