Question

In: Accounting

Why do auditors find it necessary to use sampling? What are the risks associated with using...

Why do auditors find it necessary to use sampling? What are the risks associated with using sampling? How will these risks affect the audit conclusion?

Solutions

Expert Solution

Audit Sampling means application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have an oppurtunity of being selected in order to provide the auditor a resonable basis to draw audit conclusions about the entire population. The auditor should select sample in such a way that all items within the population would be represented by the sample.

Sampling risks are those risk that auditor's conclusion based on sample might be different from the conclusion if the entire population was subject to the same audit procedures. Sampling risk can lead to two types of erroneous conclusions

1. In case of Test of Controls

That controls are effective than they are actually are or

In case of Test of Details

That material misstatements does not exists but they actually do exist.

These types of errors are primary concerns of the auditors as it affects his audit effectiveness and it will likely lead to an inappropriate audit opinion.

2. In case of Test of Controls

That controls are ineffective than they actully are or,

In case of Test of Details

That material misstatements exists when infact it does not.

This type of erroneous conclusions affects audit efficiency and it would lead to additional work to establish that initial conclusions were incorrect.


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