Assertions - Execution - Sampling

Question 1

What CAS is used for audit sampling and how does selecting all the items in audit sampling determine

Answer 1

CAS 500 - Audit Evidence includes - Selecting all items in a population 100% examinations
- Selecting specific items - Audit sampling

Selecting all items of the audit sampling is determined by - the most appropriate to examine the entire population of items that make of class of transaction

• 100% of the population - of examination is unlikely but appropriate circumstances is
• Population consists of smaller # of large value
• Significant risk, other means do not provide SAAE
• Repetitive nature of calculation or other process that is performed

Question 2

What is it called when auditors want to pick specific items

Answer 2

It is called judgemental selection - The auditor selects specific items from the population because of the understanding of the entity
Ex. High value or key item
- All items over a certain amount
- Items to obtain information
Non-sampling risk - This is the risk that an auditor reaches an erroneous conclusion for any reason not related to sampling

Question 3

Explain what audit sampling is and why it is important

Answer 3

Under CAS 530 - Application of audit procedures to less than 100% of items within a population and where each sampling unit has a chance of selection

Audit sampling is important:
1. Too costly to test 100% of items in the population
2. It can be time-consuming to test 100% in the item population
3. Nature and materially of the account or balance does not require the auditor 100% account or balance

Question 4

Explain what sampling risk is

Answer 4

Sampling risk is the risk that auditors’ conclusion based on the sample may be different from the conclusion reached by the entire population subject to the audit procedure
1. Controls are more effective (or less effective) than are
2. Material misstatement exist

Question 5

What is the purpose of audit sampling procedures and characteristics of the population

Answer 5

• The purpose is to test the control, determine if there is deviation, control is not performing
  Misstatement - occurs when the reported amount differs from the actual amount, determined when performing procedures

Characteristics of the population:
Is the sample population representative?
Is the population complete?
What is the expected deviation?

Question 6

Explain what is the representative sample, the completeness of the population, and the use of stratification

Answer 6

-The representative sample is where the auditor makes sure that the selected represents the population
- The completeness of population to determine the representative, need also to obtain evidence of the completeness of population data
- Stratification - is the process of dividing a large population of data into smaller groups of data sub-population
- Auditors can determine if stratification is appropriate, the purpose is to perform more efficient/ effective testing

Question 7

Provide the 3 steps of how to stratify the population

Answer 7

Step 1 - Select items with high monetary value - Allows greater audit effort to be directed to higher items, item may contain greater potential misstatement
Step 2 - Select items identifying characteristics (key items) - items may be stratified for certain characteristics
Ex. AFDA in the valuation of A/R, the balance may be stratified by age. Different sample size to each age group
Step 3 - Select a representative sample from the remaining items
- Basis from which the representative sample item are drown

Question 8

What are the two types of sampling approaches?

Answer 8

1. Statistical sampling - Random selection of sample item
   - Use probability theory to evaluate sample result
   - Can be used for appropriation size
   Advantage - Are objective & defensible, provides means of advance estimation size of the objective
   Disadvantage - There can be a lot more work in preliminary, which may require the auditor to have additional training
2. Non-statistical sampling - Use of professional judgment, does not have characteristics of statistical sampling
   Advantage - Less time-consuming and lower cost
   Disadvantage - Cannot draw statistical inferences from calculating compiling risk

Question 9

What are the five selections of sampling and describe them

Answer 9

1. Random sampling - The auditor selects the sample randomly by using a random # generator
2. Systematic selecting - # of sampling units in the population is divided by the total sample size to give a sampling internal
3. Monetary unit sampling - Describes a sampling method each dollar in the population represents a unit. Each unit has an equal chance of being selected
4. Haphazard selection - The auditor selects a sample without following a structured technique. Auditors still attempt to avoid any conscious bias or predictability
5. Blockchain - It is not typically used because it is not a representative sample

Question 10

Explain how sample size is used and the sample evaluation used and the auditors response

Answer 10

The sample size is used to bring sampling risk to a low level
- Must be large enough so that the risk that the sample characteristics examined are not typically

Sample evaluation: Question
1. Was sufficient appropriate audit evidence obtained?
2. Are there material errors in the population?

Test of detail - Population is stratified, audit report misstatement found in sample unto population
- Factual errors are extrapolated to determine the projected misstatement

Audit response
- Request that management investigate misstatements that have been identified and the potential for further misstatement, and make any necessary adjustment
- Perform additional audit procedures to achieve the required assurance