You and your audit engagement team are in the midst of auditing Nebula Pte Ltd (Nebula).

Your audit senior sent confirmation requests to all twelve (12) trade debtors with balances greater than $100,000. After a quick scan of the remaining 390 trade debtors in receivable ledger, he decided to haphazardly select twenty (20) of them for circularisation. He documented in the audit working papers that statistical sampling technique is applied to select all the 32 trade debtor balances.

One trade debtor, Volta Pte Ltd (Volta) replied with a balance of $149,000, $6,000 less than $155,000, the amount recorded in the clients ledger. When your audit senior queried the Finance Manager on the difference, she claimed that the trade debtor made an error and insisted that no adjustment was necessary.

Question 5

Explain to your audit senior why her documentation on audit sampling was incorrect and recommend how she should rectify it.

(10 marks)