Answered: Audit sampling involves applying an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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 auditor’s 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 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.

Expert Solution

Step 1 : Introduction

Sampling Risk :-

Sampling threat is the opportunity that the objects decided on in a pattern aren't sincerely consultant of the populace being tested. This is a chief issue, in view that an auditor does now no longer have the time to study a whole populace and so need to depend on a pattern. One mistakes which can stand up from sampling threat is that the auditor erroneously concludes that there are fewer issues with the populace than expected, that may cause an wrong audit opinion. Or, the auditor erroneously concludes that there are extra issues than expected, and so expands the pattern length to peer if that is virtually the case, which isn't always an excellent use of his time.

Non Sampling Risk :-

Non-sampling hazard is the hazard that in spite of having decided on the appropriate pattern, the auditors will arrive at incorrect end. If the auditor has selected proper pattern and nevertheless makes the defective end because of different reasons, it's far acknowledged to be a Non sampling hazard. Auditors right here have mistakenly used the irrelevant manner for judging the whole pattern which leads him to make the non-sampling hazard.

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