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In: Accounting

Define and discuss the factors to be considered in designing a sample for audit testing. Explain...

Define and discuss the factors to be considered in designing a sample for audit testing. Explain how the auditor will know if the sample is representative

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Expert Solution

The main purpose of Audit is to examine and analyse set of information in order to reach a conclusion on the basis of which necessary opinion is provided to the stakeholders. To achieve above desired objective, Auditors design procedures. It is commonly understood that it is not possible for the Auditors to examine all information to arrive at conclusion and hence sampling is one of the important audit procedures followed by the Auditor across world. In this connection it is relevant to discuss the factors to be considered by Auditors in designing a sample for audit testing. The factors to be considered in designing a sample by Auditor for audit testing are sampling risk, tolerable error and expected error. Sampling risk is basically possibility that the conclusion based on sampling may be different from conclusion when all set of information is audited to achieve an audit objective. Tolerable error is the level of error that the auditor is agreeable to accept in arriving at audit conclusion. Expected error is level of error believed to present in the set of information. The auditor can increase or decrease the sample size based on high or level of expected error present in the set of information subjected to audit. Whether the sample is representative or not can be known by way of examination of sample results. The auditor should examine the sample results to evaluate whether the relevant feature of the set of information or audit subject is confirmed or not to revise the Audit Sample.


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