Question

5. You are auditor of Purrengi LLC which has a set of tea houses in the city center. You are required to perfom audit sampling regarding to the things describes below: - You have to check all the account balances and your sample size have to cover all the items equally - You have to check the sequence of the sales invocies so that, to be ensure about the completeness - You have to check purchase balances, so every 5th purchase has to be audited. Required: Explain what is audit sampling. For the procedures above describe suitable audit sampling type

Answer 1

Audit sampling is the application of audit procedures to less than 100% of 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.

Audit sampling is used by the auditor as it is practically impossible as well as uneconomical for an auditor to check all the information that is available to them

The suitable audit sampling type for the given procedures are as follows:

(i)  to check all the account balances and your sample size have to cover all the items equally

- Random selection is the type of audit sampling to be used in the given case. This is because in random sampling it is ensured that all the items within a population have an equal chance of selection and thus the sample size covers all items equally. There is no bias from the side of the auditor

(ii) to check the sequence of the sales invoices so that, to be ensure about the completeness

- Haphazard selection is the type of audit sampling to be used in the given case. This is because here we just have to check the sequence of sales invoices to ensure that it is complete so we do not need to follow any structured technique. The auditor just has to ensure that any bias or predictability is avoided.

(iii) to check purchase balances, so every 5th purchase has to be audited

- Systematic selection is the type of audit sampling to be used in the given case. This is because this method divides the number of sampling units within a population into the sample size to generate a sampling interval and this sampling interval between selections is used to select items for audit. In the given situation also there is a sampling interval of 5 , that is, every 5th purchase is to be audited and hence this method of sampling is used