Investigation of an Article by Elder and Allen Concerning Sampling Methods - Assignment Example

Sampling Method Student’s Name Institutional Affiliation Sampling Method 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 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 incorrect conclusion. To such a pitfall, best practices, provides 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 assess is the article has followedthe 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, the audit sampling is that there is limited evidence based on 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 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). The coefficients on the inherent risk were noted to be larger than those in the constant for control risk and the variation in the data were positive. The results that were obtained by Elder and Allen (2003) were found to be consistent with those results that were found by O’Keefe et.al (1994) and which showed that the durations had a direct correlation to an intrinsic risk computation but no self restraint risk. (Moroney, Campbell and Hamilton, 2014) The table below gives an overall view of the audit risk procedure that was provided by Moroney, Campbell and Hamilton (2014) and which offers guidance to other auditors to follow while doing an audit risk assessment. Sample size goes higher with the representative of the greater for stock test counts owing to the fact of the risk that is associated with the inventory and the complexities involved in reperfroming the entire procedure at a future date. In company A, self restraint risk is quite great. The natural risks are great for the lower sample and are slightly great for the entire portion. Company A showed minimal changes in risk assessment and which had a lower typical size. However, firm A provided a direct correlation between risk and the typical size decisions and the audits with greater evaluated risks had a greater typical size (Moroney, Campbell and Hamilton, 2014, 35). In firm B, there is minimal link between the typical size and for both the natural and control risk. In firm C, the link between the natural risk and sample size are much greater. The coefficients for controlling risk are affirmative, but not greater. Company C had the greatest typical size among the companies that were involved in the study and the index variable shows a significantly reduced sample size within the duration. For firm A, the control risks are higher for all periods, but natural risk is only higher for only year 1999. None of the innate risk and control risk are higher for company B within the combined duration. Both the innate and control risks are greater for company C in the 1994. In 1999, none of the natural risk nor control risk is higher. The fact that company C used innate risk and control risk assessment while developing the entire risk assessment have led to the weakening of the link for the uncertainty and the typical size. In summary, uniformity within the uncertainty model, typical sizes are linked with the quantity of both natural risk and control risk. There is a link for the typical size and risk assessment, but which changes among the firms and durations. The correlation between the self restraint risk and natural risk and sample size were not quite greater for the companies and was grater within the beginning of the period. The link between uncertainty and the typical size relied upon the capability of the company’s instructions that are clear and shows a direct correlation between the sample size and the risk (Moroney, Campbell and Hamilton, 2014). Question 3 Apart from the risk factors that may affect the sample size, Elder and Allen (2003) also pointed out that the currency quantity within the accounting balances, and method of test to be used and the duration when the study was conducted have a significant role to play in influencing the sample size. Materiality is based on planning. Planning materiality is used instead of acceptable understatement due to the fact that some companies within the study rooted for acceptable understatement on the assessor’s uncertainty for the evaluation Concerning tests, most of the audit firms have a tendency to choose a bigger typical size for their experimental tally owing to the fact that of the difficulty involved in going back and redoing or reperfroming further additional tests.Inventory test counts are the most commonly determined by judgmental means rather than by the use formula and which has the overall effect of reducing the link for the uncertainty of the risk and the typical size. The decision concerning Sample size depends partially on audit test to be used. The register experiment tally and the receivables verification experiment are used and which rely on sample size regression models that are to be used.On the factor relating to dollar amount, it is quite hard to identify the currency amount of a given demography and the quantities that are experimented upon. There is also the aspect of the assurance factors, which are lower when compared to those used in the guide of 1999. The use of both lower assurance and planning materiality instead of tolerable misstatement resulted in a sample size that is much smaller when compared to those that were suggested by the audit sample guide in 1999.Some environmental changes have been known to reduce the sample size as time keeps on changing. These amendments are higher reliance on data systems, heavy dependency on an experimental controls, and variation in the significance of the typical accounts such as receivables and registry and rejoinder to an aggressive situation. Question 4 Best practices provide a benchmark upon which other individuals within the auditing industry should follow. It is not enough just to follow the practice within the auditing but it should incorporate the best practice so as to ensure that the final results are credible enough and can be relied upon. By just following on the practice, one is capable of violating the rules as it was evident in the case study where by Elder and Allen (2003) did not follow or their method was not consistent with the way that Moroney, Campbell and Hamilton (2014) told us on how the sampling procedure should be done. By following the best practices, one is bound to end up with a comprehensive result that reflects the situation on the ground. The failure of Elder and Allen (2003) to follow the procedure outlined by Moroney, Campbell and Hamilton (2014), saw them ending up with contradicting results and which cannot be relied upon.The relationship between practice and best practice is that best practice provides results, but the results obtained through best practice are much superior since all the recognized procedure were adhered to (Moroney, Campbell and Hamilton, 2014). The results obtained through practice may have violated some of the procedures hence providing inaccurate information.Best practice normally abides to superior skill when it comes to execution and which includes aspects such as high quality insight and paying attention to the details.The practice uses or relies on less standard tools and procedures plus those carrying out the study are not all that skilled. Best practice entails using more advanced and in some situations it uses sophisticated tools to carry out the study. Highly skilled and well trained people normally rely on or use best practice since the information obtained at the end is accurate and can be relied upon. Best practice does have some outlined procedures and rules and which they must comply with so as to come up with credible results. No procedure is violated in best practice; every step is followed and adhered to hence the reason as to why the results can be relied upon. Practice does havea variety of procedures which they follow hence provides different results. In some other instances, these procedures are normally violated. The failure to follow some steps in the practice, leads to the final information not being quite conclusive enough due to lack of enough information. References 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. 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