Essays on Sampling Methods, Difference between Sampling and Non-Sampling Risk Assignment

Tags: Audit
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The paper "Sampling Methods, Difference between Sampling and Non-Sampling Risk" is a great example of a finance and accounting assignment.   Audit sampling is used in an audit to select accounts or transactions within a balance for the purpose of testing them. Audit sampling is done in such a way that an auditor applies the audit process to less than 100 percent of the items that are contained in a class of transactions or an account balance. The items that are selected, i.e. the sample, are used to evaluate some characteristics of the entire items the transactions or balance. Understand the difference between sampling and non-sampling risk Sampling risk is the risk that the sample that is selected by an auditor does not represent the population of items or transactions that are contained in an account balance for testing, and because of this, the auditor makes an inappropriate conclusion.

On the other hand, the non-sampling risk is the risk that an auditor makes an inappropriate inference due to a reason that is not related to sampling matters. This can arise when the auditor applies an inappropriate audit process, makes decisions on the basis of unreliable evidence or takes too little time to test the accounts that are at the highest risk of material misstatement. Differentiate between statistical and non-statistical sampling Statistical sampling encompasses random selection and use of probability theory to assess sample results, including the results of sampling risk.

On the other hand, non-statistical sampling is a sample selection method that does not have the characteristics of statistical sampling. That is, non-statistical does not involve random selection and it does not encompass the use of probability theory to evaluate the sample results. Describe sampling methods Sampling methods include systematic selection, random selection, block selection, haphazard selection and judgemental selection. Systematic selection entails selecting a sample for testing by dividing the number of items in a population by the size of the sample, which results in a sampling interval, n.

a starting point is then selected, which is an item within the population below n, and then the sample is arrived at by selecting the first item followed by each nth item after that. Random sampling involves choosing sample items from the population freely without influencing the items that are selected.

This means that each item in a population has an equal probability of being considered as part of the sample. Block selection entails selecting items that are clustered together within the total number of items that are available. This requires the items to be sorted in sequence. Haphazard selection involves selecting a sample without applying a methodical technique. Judgemental selection entails selecting items that an auditor considers necessary to be included in the sample of items that need to be tested. Determine the factors that influence the sample size when testing controls The extent to which the material misstatement risk is reduced by the working efficiency of controls: An increase in the degree to which the auditor’ s assessment of risk takes into consideration the relevant controls increases the sample size. Acceptable deviation: An increase in the rate of deviation that can be tolerated decreases the sample size. Rate of deviation from prescribed control: An increment in the projected rate of deviation of the population being tested increases the sample size. Auditor’ s required confidence: A rise in the auditor’ s desired degree of assurance that the rate of deviation that can be tolerated is not exceeded by the population’ s actual deviation rate increases the sample size. A number of sampling units: An increment in the number of sampling units in the population may affect the sample size but the effect is negligible.

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