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In: Accounting

Explain why monetary units sampling is not useful for detecting understatements? Identify the PCAOB, AICPA AND...

Explain why monetary units sampling is not useful for detecting understatements?

Identify the PCAOB, AICPA AND IAASB guidance that relates to audit sampling, describe similarities and differences in the definitions.

Solutions

Expert Solution

PCAOB definition of sampling risk (AU 350): “Sampling risk arises from the possibility that, when a test of controls or a substantive test is restricted to a sample, the auditor's conclusions may be different from the conclusions he would reach if the test were applied in the same way to all items in the account balance or class of transactions.”

AICPA definition of sampling risk (AU-C 530): “The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.”

IAASB definition of sampling risk (ISA 530): “The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.”

The PCAOB definition reflects the prior AICPA guidance pre-SOX, and so differs from the current AICPA and IAASB definitions (which are identical). Substantively speaking, however, the concept is the same with just cosmetic differences in wording.


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