Sampling

Question 1

What is audit sampling

What is the population

Answer 1

The application of audit procedures to less than 100% of items in the population.

The entire set of data from which the sample is selected.

Question 2

How to ensure we can make conclusions about the entire population

Answer 2

All items in the sample have the same chance of being selected.

Question 3

What does the auditor need to do on material items.

Answer 3

The auditor must perform substantive tests individually and remove it from the sample.

This includes reviewing the journal entries to supporting evidence e.g source doc, and agreeing the financial statements to the journals.

Question 4

Why do we sample

Answer 4

We sample as it is more cost and time effective.
Checking all transactions means the audit fee would be significantly higher.

To obtain enough evidence to give assurance.

Question 5

What is an error

Answer 5

error is an unintentional misstatement in financial statements. This could be an omission or the wrong amount disclosed.

Question 6

What is sampling risk
and why do we need to consider it

Answer 6

The risk and auditors conclusion, based on the sample, is different from the conclusion that would be reached if the entire population was subjected to the same audit procedure.

We need to consider sampling risk to ensure that our sample sizes represent the population.

Question 7

What is a tolerable misstatement and what does it depend on

Answer 7

The maximum misstatement an auditor is willing to accept in a population before becoming concerned regarding a material misstatement.

It depends/ is set by the total materiality.

Question 8

What is the effect on the sample size of an increase in tolerable misstatement, an increase in sales invoices in the population, and a greater level of misstatements than were anticipated.

Answer 8

Decrease as there is a larger amount of acceptable misstatements so we test fewer transactions.

No effect, as sample size is not based on population size but risk.

Increase, there is greater control risk than expected so we need to lower detection risk and obtain more samples.

Question 9

2 types of sampling

Answer 9

non-statistical sampling- This doesn’t use any mathematical basis for selecting a sample.

This could be using haphazard method where we select items in the sample without a structured technique and avoiding bias or predictability ( therefore, they can’t just choose convenient options.)

Statistical sampling- Uses a mathematical table or probability theory to evaluate results of testing.
It ensures each unit has equal chance of selection.

Question 10

Methods of statistical sampling

Answer 10

Random sampling- process uses a random number generated from a computerised generator or number table (different from haphazard as no judgement)

Systematic selection- the number of units in a population is divided by the sample size to give a sampling interval. e.g if have a 1000 population and require a 200 sample size, 1000/200=5. So we take a random starting point within the first 5 numbers and then the auditor tests every 5 numbers from there.

Monetary unit sampling- Population is ordered randomly and items are selected for sampling by weighting items in proportion to their value.

So, each £1 has the same chance of being selected. As that larger values have more £1, they are more likely to be selected