Question

In: Math

Identify the advantages and disadvantages of monetary-unit sampling. The advantages include that monetary-unit-sampling will result in...

Identify the advantages and disadvantages of monetary-unit sampling.

The advantages include that monetary-unit-sampling will result in a smaller sample size than classical variable sampling. It also results in a stratified sample item when samples are selected using MUS. The results of the calculation of sample size and the evaluation of the sample aren't based on the standard deviation. The disadvantages include the overstatement of the allowance of sampling risk if MUS is used to detect misstatements. Special design consideration is required using a selection of zero or negative balances. The sample error is assumed to be no more than 100%.

Can you expound further on this? Thanks!

Solutions

Expert Solution

The advantages and disadvantages of MUS are:
Advantages:

• When the auditor expects no misstatements, MUS will normally result in a smaller sample size than classical variables sampling.

• The calculation of sample size and the evaluation of the sample results are not based on the variation (that is, the standard deviation) between items in the population. •

MUS, when applied using a probability-proportional-to-size sample selection procedure as outlined in the text, automatically results in a stratified sample because sampled items are selected in proportion to their monetary amount.


Disadvantages:

• Selection of a zero or negative balance generally requires special design consideration.

• The general approach to MUS assumes that the audited amount of the sample item is not in error by more than 100 percent.

• When more than one or two misstatements are detected using a MUS approach, the sample results calculations may overstate the allowance for sampling risk.


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