Andit sampling involves applying an audit procedure to less than 100 percent of the population for the purpose of evaluating some characteristic of the population. When an auditor uses sampling, an element of uncertainty enters into the auditor's conclusions. Required: a. Explain the auditor's justification for accepting the uncertainties that are inherent in the sampling process. b. Discuss the uncertainties that collectively embody the concept of audit risk. c. Discuss the nature of sampling risk and nonsampling risk. Include the effect of sampling risk on tests of controls in terms of Type I and Type II errors.

Andit sampling involves applying an audit procedure to less than 100 percent of the population for the purpose of evaluating some characteristic of the population. When an auditor uses sampling, an element of uncertainty enters into the auditor's conclusions. Required: a. Explain the auditor's justification for accepting the uncertainties that are inherent in the sampling process. b. Discuss the uncertainties that collectively embody the concept of audit risk. c. Discuss the nature of sampling risk and nonsampling risk. Include the effect of sampling risk on tests of controls in terms of Type I and Type II errors.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: List and discuss the decisions involving professional judgment that must be made by the CPAs in…

A: In the context of a statistical investigation, the term "sampling techniques" refers to the…

Q: General Attributes Sampling. You overheard the following dialogue between Joe Ashley(a staff…

A: Hello, since your question has multiple sub parts we will solve the first three questions for you.…

Q: 2. Based on your review of the account receivable - test of control procedures (workpapers AR.2.1 to…

A: Introduction:- In this scenario, we are presented with a situation where an auditor has reviewed the…

Q: The International Standard on Auditing (UK) (ISA (UK)) 530, “applies when the auditor has decided…

A: Answer:- Sampling meaning:- Sampling procedures are the methods used to draw samples from a large…

Q: different types of sampling risks

A: Audit sampling is a part of auditing in which auditor selects some of the samples from the…

Q: What is the risk caused by the sample taken by the Auditor that does not describe the…

A: Audit sampling is the audit procedure in which sample is selected to test the whole data or…

Q: Discuss the differences between a first-party, second-party, and third-party audit.

A: The first-party audit is also known as internal audits. This is performed by internal audit…

Q: Monetary Unit and Classical Variables Sampling. Indicate whether each of the following…

A: Definition:

Q: Ordinarily, risk assessment procedures do not involve the use of audit sampling. However, the…

A: The purpose of audit risk assessment is to gain a better understanding of Organisation and its…

Q: 7. Auditors use sampling in performing tests of controls and ______________ Question 7…

A: In audit sampling, the auditor tests all the data on sample basis. The analytical audit procedures…

Q: s1: The only way to know with certainty whether a sample Is representative is to subsequently audit…

A: Option (c) is the correct answer i.e. s1 and s2 are true

Q: Historically, audit testing relied on population sampling. Due to the manual process of testing,…

A: Detailed answers show blown Explanation:

Q: STATEMENT 1: In an audit sampling application, detection risk arises from the uncertainties of…

A: Audit sampling is a process or procedure in which a sample of items are selected from the total…

Q: The maximum amount of error in a population that the auditor is willing to accept is referred to as…

A: Acceptable risk is the auditor’s level of risk that they are willing to accept to release an…

Q: An auditor who uses statistical sampling for attributes in testing internal controlsshould reduce…

A: Sampling: Sampling can be defined as the process under which small number of observations is taken…

Q: Attribute sampling is a statistical technique used in audit procedures to examine the…

A: Whether or not official signatures appear on all checks depends on the specific control procedures…

Q: STATEMENT 1: All auditing procedures involves audit sampling. STATEMENT 2: Sufficiency or adequacy…

A: Answer: Concept: Audit sampling is done in audit so that maximum testing are covered.

Question

On
Andit sampling involves applying an audit procedure to less than 100 percent of the population for the purpose of evaluating some
characteristic of the population. When an auditor uses sampling. an element of uncertainty enters into the auditor's conclusions.
Required:
a. Explain the auditor's justification for accepting the uncertainties that are inherent in the sampling process.
b. Discuss the uncertainties that collectively embody the concept of audit risk.
c. Discuss the nature of sampling risk and nonsampling risk. Include the effect of sampling risk on tests of controls in
terms of Type I and Type II errors.
Accessibility: Investigate
Styles

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Select the necessary words from the list of possibilities to complete the following statements. 1. 2. 7. Inherent in the use of sampling is representative of the population. 9. When the auditors estimate sampling risk using professional judgment rather than by using the laws of probability, they are said to be using. sampling. an item from the population may be selected two or more times for inclusion in the When using sample. The term 3. 4. 5. In performing tests of controls, the auditors are primarily concerned with the risk of assessing 6. To use attributes sampling tables, the auditors must stipulate the desired risk of assessing control risk too low, the expected deviation rate in the population, and the desired Statements risk which is the possibility of selecting a sample that i not refers to the process of dividing a population into relatively homogeneous subgroups. sampling is usually used in situations in which the auditors expect a very low rate of occurrence of some…
Attribute sampling enables the auditor to directly assess whether a rule is operating successfully or not, sampling is more reliable for assessing controls. This is crucial in circumstances where data accuracy or completeness are essential, such as when a credit-check control is used for consumer orders. The focus is on estimating the overall monetary value of a population, therefore monetary-unit sampling is more suitable for verifying the accuracy of financial statements or specific account balances. It is crucial to remember that the exact audit objectives and the type of data being checked will determine the sampling technique that is used. Do you believe monteray unit sampling can do the same thing?
The audit team will choose to reduce the reliance on controls if the _____ is greater than the _____a. Tolerable rate of deviation; upper limit rate of deviation.b. Upper limit rate of deviation; tolerable rate of deviation.c. Expected population deviation rate; tolerable rate of deviation.d. Tolerable rate of deviation; expected population deviation rate.
The more assurance the auditor wants, _______. A. the less representative a sample should be of the population, and the more testing the auditor needs to do B. the more representative a sample should be of the population, but the less testing the auditor needs to do to gain efficiency C. the more representative a sample should be of the population, and the more testing the auditor needs to do D. the less representative a sample should be of the population, and the less testing the auditor needs to do
1.1.Sampling is important in an audit process. Briefly explain the value of sampling in the audit process. 1.2. Identify and explain the two types of sampling risks?
S1: Stratification in audit sampling enables the auditor to direct his efforts towards the items he considers would potentially contain the greater monetary error. S2: When performing substantive procedures, an account balance or class of transactions is often stratified by monetary value. a. BOTH STATEMENTS ARE TRUE b. BOTH STATEMENTS ARE FALSE c. ONLY S1 IS TRUE d. ONLY S2 IS TRUE
A number of factors influences the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? a. Smaller measure of tolerable misstatement. b. Greater reliance on internal control. c. Smaller expected frequency of errors. O d. Greater reliance on analytical procedures.
7) In an environment that is highly automated an auditor determines that it is not possible to reduce detection risk solely by using substantive test of transactions. Under these circumstances the auditor most likely would: Perform test of controls to support a lower level of assessed risk. Increase sample size to reduce sampling risk and detection risk. Adjust the materiality level and consider the effect on inherent risk Apply analytical procedures and consider the effect on control risk
In audit sampling applications, sampling risk isa. A characteristic of statistical sampling applications but not of nonstatistical applications.b. The probability that the audit team will fail to recognize erroneous accounting in the client’sdocumentation.c. The probability that accounting misstatements will arise in transactions and enter theaccounting system.d. The probability that an audit team’s conclusion based on a sample might be differentfrom the conclusion based on an audit of the entire population.
According to AU-C 530 Audit Sampling, statistical sampling O is an approach to sampling that involves a random selection of sample items and the use of an appropriate non-statistical technique to determine sample size and evaluate sample results, including measurement of sampling risk O is an approach to sampling that involves a random selection of sample items and the use of an appropriate statistical technique to determine sample size and evaluate sample results, including measurement of sampling risk O should only be conducted for public companies O should only be conducted for private companies
The risks of incorrect acceptance in variables sampling and of overreliance in attributessampling both relate toa. Effectiveness of an audit.b. Efficiency of an audit.c. Control risk assessment decisions.d. Evidence about assertions in financial statements.
STATEMENT 1: The choice between a statistical and a nonstatistical sampling plan is based primarily on the auditor's assessment of the relative costs and benefits. STATEMENT 2: The choice between a statistical and a nonstatistical sampling plan is made independent of the selection of audit procedures. A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct