Question

1. Mention and briefly explain the advantages and disadvantages of using statistical sampling in a financial statement audit.

2. Mention and briefly explain at what stage or stage of an audit of financial statements the use of statistical sampling could be considered.

Answer 1

Advantages of using Statistical sampling in financial statement audit.

1) The sample selection is more objective and thereby more defensible.

2)The sample size does not increase in proportion to increase in population size.

3)The method provides means of estimating minimum sample size associated with specified risk.

4) Sampling error will be low.

5) It may provide a better description of the large mass of data rather than examining complete data.

Disadvantages of using Statistical sampling in financial statement audit.

1) The statistical sampling method may not appropriate in some audit procedures.

2) High cost of training in the use of statistical sampling technique.

3) High cost of designing and implementing the technique.

4) Time-consuming.

2)

Stage of audit at which sampling technique is considered.

Sampling at audit means applying audit procedures to less than 100% population. The auditor can use statistical sampling in the following circumstances;

a) Where the population size is too large and impracticable to do 100% examination.

b) where most of the items in population are homogeneous in nature.

c) Where the risk of misstatement is low.