It is important to recognizethat audit sampling may be constructed on a nonstatistical basis. If the auditor usesstatistical sampling, probability theory willbe used to determine sample size and random selection methods to ensure each item or GHc1 in value of the population has the same chance of selection. Non-statistical sampling is more subjective than statistical sampling, typically using haphazard selection methods and placing no reliance on probability theory. However, in certain circumstances statistical sampling techniques maybe difficult to use. The auditor will reviewthe circumstances of each audit before deciding whether to use statistical or non-statistical sampling. Required: (a) List threesituations where the auditor would be unlikely to use audit sampling techniques. (b) Explain what you understandby the following terms: (i) Random sampling; (ii) Monetary unit sampling. (c) Describe the factors which theauditor should consider whendetermining the size of a sample. (d) Describe to what extent statistical sampling enhances the quality of the audit evidence. (e) Explain how judgementis used in statistical and non-statistical sampling
Addition Rule of Probability
It simply refers to the likelihood of an event taking place whenever the occurrence of an event is uncertain. The probability of a single event can be calculated by dividing the number of successful trials of that event by the total number of trials.
Expected Value
When a large number of trials are performed for any random variable ‘X’, the predicted result is most likely the mean of all the outcomes for the random variable and it is known as expected value also known as expectation. The expected value, also known as the expectation, is denoted by: E(X).
Probability Distributions
Understanding probability is necessary to know the probability distributions. In statistics, probability is how the uncertainty of an event is measured. This event can be anything. The most common examples include tossing a coin, rolling a die, or choosing a card. Each of these events has multiple possibilities. Every such possibility is measured with the help of probability. To be more precise, the probability is used for calculating the occurrence of events that may or may not happen. Probability does not give sure results. Unless the probability of any event is 1, the different outcomes may or may not happen in real life, regardless of how less or how more their probability is.
Basic Probability
The simple definition of probability it is a chance of the occurrence of an event. It is defined in numerical form and the probability value is between 0 to 1. The probability value 0 indicates that there is no chance of that event occurring and the probability value 1 indicates that the event will occur. Sum of the probability value must be 1. The probability value is never a negative number. If it happens, then recheck the calculation.
It is important to recognizethat audit sampling may be constructed on a nonstatistical basis. If the auditor usesstatistical sampling, probability theory willbe used to determine
Required: (a) List threesituations where the auditor would be unlikely to use audit sampling techniques.
(b) Explain what you understandby the following terms: (i) Random sampling; (ii) Monetary unit sampling.
(c) Describe the factors which theauditor should consider whendetermining the size of a sample.
(d) Describe to what extent statistical sampling enhances the quality of the audit evidence.
(e) Explain how judgementis used in statistical and non-statistical sampling
Step by step
Solved in 4 steps
