Auditing

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Week 12 - Part A:
Answer the below questions from chapter 15:
1. Describe the differences between statistical and non-statistical sampling in terms of (1) the sample selection methods used, and (2) quantification of sampling risk. Ans: Nonstatistical sampling differs from statistical sampling in that non-probabilistic sampling can be used for the former but not the latter. In addition, sampling risk can be quantified when using statistical sampling but not when using nonstatistical sampling.

2. Directed sample selection is the selection of each item in the sample based on some judgment criteria established by the auditor. Discuss three commonly used criteria. ANS: Commonly-used criteria used in directed sample selection are:

Items most likely to contain misstatements; for example, unusual or complex transactions, overdue receivables.
Items containing selected population characteristics, such as transactions selected from each month during the year or from each location.
Large dollar coverage in which the auditor focuses on selecting the relatively large items in the population for testing.

3. What is the key advantage and disadvantage associated with systematic sample selection? How must auditors address this disadvantage?

Ans: The key advantage is its ease of use. Generally, systematic samples are easily drawn from the population and supporting documentation is easily developed. The key disadvantage is the potential for bias. Once the first item in the sample is selected, all other items are chosen automatically. Auditors should be careful to consider any potential pattern in the data prior to selecting their sample to ensure that their selection considers the possible bias.

4. Describe each of the four types of sample selection methods commonly associated with statistical audit sampling.

Ans: Four types of sample selection methods commonly associated with statistical audit sampling are:
Simple random sample...
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