Audit Sampling – Knowsia

AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

Question

a) ISA 530: Audit Sampling indicates that the decision to use statistical sampling or non-statistical sampling is a matter of professional judgment and does not indicate which should be used in any given situation. However, the standard is clear that sample size is not a valid criterion to distinguish between the selection of sampling methods. Therefore, the auditor should not base their decision on whether to use statistical or non-statistical sampling on the outcome of the calculation of sample sizes.

Required: Differentiate between statistical sampling and non-statistical sampling.

A core objective of an audit is to enhance the degree of confidence intended users can place in the financial statements. This is achieved through the expression of an opinion and is governed by key conceptual pillars. Central to this process are the concepts of materiality and the level of assurance provided.

Required: i) Explain the concept of materiality and performance materiality.

ii) Compare and contrast limited assurance and reasonable assurance.

Your client has outsourced their payroll processes to Azara Technologies (Azara), a payroll management company. You have asked the client how they are confident that the payroll that is processed is accurate and appropriate. They have indicated that Azara sends them the final payroll run for review before payment is done. They also mentioned they performed due diligence on Azara before contracting them and noted that they have other high-profile companies as clients and has a reputable audit firm as its Service Auditor who audits the payroll management service. Your client has shared with you the final approved payroll run for each month under review.

Required: State FIVE audit procedures to be performed on the payroll.

Answer

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Tags: Audit Sampling, ISA 530, judgemental sampling, non-statistical sampling, probability theory, Professional Judgment, sampling risk, Statistical Sampling
Level: Level 2

Topic: Audit Sampling and Other Selective Testing Procedures

AA – L2 – Q60 – Audit Sampling

Define sampling risk in the context of audit sampling. List and explain five methods of sample selection used in audit sampling.

Question

Sampling

ISA 530 Audit Sampling defines audit sampling as:
‘The application of audit procedures to less than 100% of the items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.’

Required:

(a) Define sampling risk.
(1 mark)

(b) List five methods of sample selection and explain how they function.
(10 marks)

(c) Which of the above sample selection methods in part (b) would you use if you wanted to maximise the opportunity of having high-value items in your sample? Explain why.
(3 marks)

(d) Define ‘tolerable misstatement’.
(1 mark)

(e) List five situations where sampling may not be appropriate.
(5 marks)

Answer

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Tags: Audit Evidence, Audit Procedures, Audit Sampling, Non-Sampling Situations
Level: Level 2

Topic: Audit Sampling and Other Selective Testing Procedures

AA – L2 – Q48 – Audit Sampling

List factors for selecting a sample of receivables for confirmation and apply them to Henley Co.'s receivables. Set out procedures for planning, performing, and following up receivables confirmation for Henley Co.

Question

The revenue of Henley Co. for the year ended 30 June 20X8 was C7.5 million, its draft profit before tax was C200,000 and its net assets C1.8 million. At that date the receivables ledger contained 140 live accounts totalling trade receivables of C1.6 million. The accounts can be broken down as follows:

Value range	Number of balances
C000	2
100-150	6
50-100	40
10-50	60
1-10	29
0-1	3
Credit balances (all less than C1,000)	140

The auditor is to use direct confirmation to confirm receivables balances.

Required
(a) List the factors which should be considered when selecting a sample of receivables for confirmation and how those factors should be applied to Henley Co.’s receivables.

(b) Set out the procedures to be performed:

(i) when planning and performing the confirmation

(ii) when following up the results.

Answer

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Tags: Audit Procedures, Audit Sampling, Follow-up Procedures, Receivables Confirmation, Trade Receivables
Level: Level 2

Topic: Audit Sampling and Other Selective Testing Procedures

AA – L2 – Q43 – Audit Sampling

Describe use of statistical and judgmental sampling in auditing revenue system of a manufacturing company. Describe use of statistical and judgmental sampling in direct confirmation of trade receivables. Describe use of statistical and judgmental sampling in verifying year-end trade receivables. Discuss advantages and disadvantages of statistical vs. judgmental sampling in audit. Explain why auditing accounting estimates is difficult for auditors.

Question

You are planning the audit of the revenue system and year-end trade receivables of Porter Manufacturing.
The company has revenue of approximately $15 million and all of its sales are made on credit. The year-end value of trade receivables is approximately $3 million, and there are about 1,000 customers on the sales ledger.
You have been asked by the partner in charge of the audit to consider whether it would be appropriate to use statistical or judgmental sampling in your audit work.

Required:
(a) Describe and illustrate, by the use of suitable examples, the way in which statistics and judgement can be used in audit sampling, in relation to:
(i) the audit of the revenue system

(ii) writing directly to trade receivables, asking them to confirm the balance owed

(iii) the verification of year-end trade receivables

(b) Based on your answer to (a), above, discuss the advantages and disadvantages of the use of statistical or judgmental sampling.

(c) Explain why the audit of accounting estimates is a difficult area for the auditor.

(d) List the audit evidence you would seek in respect of a provision for damages in respect of an action brought by a customer for breach of contract.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Audit Sampling, Judgmental Sampling, Revenue System, Statistical Sampling
Level: Level 2

Topic: Audit Sampling and Other Selective Testing Procedures

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AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

AA – L2 – Q60 – Audit Sampling

Define sampling risk in the context of audit sampling. List and explain five methods of sample selection used in audit sampling.

AA – L2 – Q48 – Audit Sampling

List factors for selecting a sample of receivables for confirmation and apply them to Henley Co.'s receivables. Set out procedures for planning, performing, and following up receivables confirmation for Henley Co.

AA – L2 – Q43 – Audit Sampling

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AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

You're reporting an error for "AA – L2 – Q3 – Audit Sampling"

AA – L2 – Q60 – Audit Sampling

Define sampling risk in the context of audit sampling. List and explain five methods of sample selection used in audit sampling.

You're reporting an error for "AA – L2 – Q60 – Audit Sampling"

AA – L2 – Q48 – Audit Sampling

List factors for selecting a sample of receivables for confirmation and apply them to Henley Co.'s receivables. Set out procedures for planning, performing, and following up receivables confirmation for Henley Co.

You're reporting an error for "AA – L2 – Q48 – Audit Sampling"

AA – L2 – Q43 – Audit Sampling

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