Question

Explain what is the sampling in the audit. If it were the auditor, what would be the risks involved with just taking a sample of the information? Do you think it would be better to audit all the documents of a company instead of just a sample, why or why not?

Answer 1

THE APPLICATION OF AUDIT PROCEDURES TO LESS THAN 100% OF ITEMS WITHIN A POPULATION SUCH TGAT ALL SAMPLING UNITS HAVE A CHANCE OF SELECTION IN ORDER TO DRAW ABOUT THE ENTIRE POPULATION.

THE RISK THAT THE AUDITOR'S CONCLUSION BASED ON A SAMPLE MAY BE DIFFERENT FROM THE CONCLUSION IF THE ENTIRE POPULATION WERE SUBJACTED TO THE SAME AUDIT PROCEDURE.

SAMPLING RISK CAN LEAD TO TWO TYPES OF ERRONEOUS CONCLUSIONS:

1)IN THE CASE OF TEST OF CONTROLS ,THAT CONTROLLS ARE MORE EFFECTIVE THAN THEY ACTUALLY ARE ,OR IN THE CASE OF TEST OF DETAILS ,THAT A MATERIAL MISSTATEMENT DOES NOT EXIST WHEN IN FACT IT DOES.THE AUDITOR IS PRIMARILY CONCERNED WITH THIS TYPE OF ERRONEOUS CONCLUSION BECAUSE IT AFFECTS AUDIT EFFECTIVENESS AND IS MORE LIKELY TO LEAD TO AN INAPPROPRIATE AUDIT OPINION.

2)IN THE CASE OF TEST OF CONTROLS,THAT CONTROLLS ARE LESS EFFECTIVE THAN THEY ACTUALLY ARE ,OR IN THE CASE OF A TEST OF DETAILS ,THAT A MATERIAL MISSTATEMENT EXISTS WHEN IN FACT IT DOES NOT .THIS TYPE OF ERRONEOUS CONCLUSION AFFECTS AUDIT EFFICIENCY AS IT WOULD USUALLY LEAD TO ADDITIONAL WORK TO ESTABLISH THAT INTIAL CONCLUSION WERE INCORRECT.

IT DEPENTS ON THE SIZE OF ITEMS TO BE AUDITED IF AUDITOR HAVE TO AUDIT LARGE NUMBER OF ITEMS THEN THEY CAN GO FOR SAMPLING FURTHER SAMPLING MAY BE SYSTEMATIC OR UNSYSTEMATIC .IN CASE WE FIND ANY DOUBT WHILE AUDITING BY SAMPLING THEN WE MUST TO ADDITIONAL DUTIES. OR WE MAY NEED TO DO DETAIL AUDIT RATHER THAN SAMPLING .IN CASE OF SMALL ORGANISATION TO BE AUDITED THEN AUDITOR SHOULD AUDIT ALL THE DOCUMENTS OF THE RELATED COMPANY .

IF WE IGNORE THE SIZE OF ORGANISATION AND TYPES AND QUANTITY OF ITEMS THEN NO DOUBT IT WOULD BE BETTER TO AUDIT ALL THE DOCUMENTS .

NOTE: POPULATION-THE ENTIRE SET OF DATA FROM WHICH A SASMPLE IS SELECTED AND ABOUT WHICH THE AUDITOR WISHES TO DRAW CONCLUSIONS.