The paper 'Investigation of an Article by Elder and Allen Concerning Sampling Methods" is a perfect example of a finance and accounting assignment. While using any audit sampling system, auditors must be able to come up with the correct conclusion on complex systems. However, it is sometimes difficult or too costly due to the many items examined and spread throughout a large geographical area. As a result, auditors are forced to work with smaller samples. The challenge with this sampling method is that auditors tend not to follow the correct procedure. Therefore, come up with the incorrect conclusion.
To such a pitfall, best practices provide auditors with a tested system to follow even when working with insufficient data. This paper is an investigation of an article by Elder and Allen (2003). Specifically, the paper assesses is the article has followed the steps in the auditing sampling procedure by Moroney, Campbell and Hamilton (2014) Elder and Allen (2003) used audit sampling, which provides different categories for a joined evaluation of natural risk and control risk: (1) maximal, (2) under maximal, (3) stable or (4) below average.
Within this study, firm C used below average and assessment method for natural risk plus the control risk. Company A made use of two categories of natural risk plus the control risk. Company B made use of various categories of the natural risk, which varied among the other evaluation for the different categories of control risk in the year 1994 to three-year levels in 1999. The shortcoming is that it is not consistent with Moroney, Campbell, and Hamilton (2014) sampling methods. Other noted variances include the fact that guidance was not provided in relation to the likelihood related to lexical evaluation.
The sampling method was not able to support the likelihood that the approximations would be closely related/linked to all levels of evaluation. Also, audit sampling is that there is limited evidence-based on a risk assessment level. Within one of the firms, it was established that the auditors assessed control risk at a maximal height plus it was established that there was low reliance on control. The other sampling method that was used in this study is the monetary unit sampling.
Whereby, the sampling is a value-weighted selection whose sample size, selection, and analysis resulted in a summary in monetary units that are shown in the case study (Elder and Allen, 2003). The monetary unit sampling technique is normally used by auditors to determine the accuracy of the financial records within various companies. Some of the steps that are involved in the monetary unit sampling include; Determination of the sample size Selection of the sample Audit procedures are conducted Analysis of the results and conclusion of the sample size is made. This method is contrary to what Moroney, Campbell and Hamilton (2014) provided guidelines in relation to auditing.
The auditors who used method had a tendency of reversing the process with the sole aim of getting a typical size which is different to those that have been given within the recommendations. Due to this, the auditors result to trivialize the risk level so as to arrive at an appealing typical size. Question 2 The various tables that are presented Elder and Allen (2003) like table four, provided reversions of an outcome for a joined typical duration.
Some of the columns have a full sample size while others having missing data. The final year index quantity is contrary and shows a deduction in the typical quantity and which is an indication that the typical quantities were less in 1999 than they were in 1994. During the joined period model, the typical quantity coefficients for the internal risk were beneficial and matched the typical size while control risk beneficial and slightly important just for the entire bit (Elder and Allen, 2003).
Elder, R. & Allen, R. (2003) ‘A longitudinal field investigation of auditor risk assessments and sample size decisions’ The Accounting Review 78(4) pp. 983-1002
Moroney, R., Campbell, F. M., & Hamilton, J. M. (2014). Auditing: A practical approach. Milton, Qld: John Wiley and Sons Australia.