Chat with AIExam 6: Sampling and Overview of the Risk Response Phase of the Audit
The most common statistical sample selection method according to the study by Hall et al (2002) is dollar-unit sampling. Explain in detail how this method operatand evaluate the advantagand disadvantagof using it. CASE
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Answered by Examlex AI CopilotDollar-unit sampling is a statistical sample selection method that is commonly used in auditing and accounting. This method operates by selecting items for testing based on their dollar value, with the goal of identifying and testing items with higher monetary significance.
The process of dollar-unit sampling involves the following steps:
1. Determining the total dollar amount of the population being sampled.
2. Setting a sampling interval, which is calculated by dividing the total dollar amount by the desired sample size.
3. Randomly selecting a starting point within the population.
4. Selecting items for testing at regular intervals based on the sampling interval.
One of the main advantages of dollar-unit sampling is its ability to prioritize items with higher monetary value, which can be particularly useful in identifying and testing high-risk transactions or accounts. This can lead to a more efficient and effective audit process, as it focuses resources on items that are more likely to have a material impact on the financial statements.
However, there are also some disadvantages to using dollar-unit sampling. One potential drawback is that it may not be suitable for populations with a wide range of dollar values, as it could result in a skewed sample that does not accurately represent the entire population. Additionally, the method relies on the assumption that the dollar value of items is a reliable indicator of their risk, which may not always be the case.
In conclusion, while dollar-unit sampling can be a valuable tool for prioritizing high-value items in an audit, it is important to consider its limitations and potential biases when applying this method. It is also important to use professional judgment and consider other sampling methods in conjunction with dollar-unit sampling to ensure a comprehensive and accurate audit process.
When conducting detailed substantive procedures, auditors search for evidence that:
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VerifiedB
The risk that the auditor concludthat a material misstatement exists when it donot is likely to result in an increase in audit effort when it is not required.
(42) VerifiedTrue
Stratification of the population will result in less efficient sampling and increase the sample size required.
(38) Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.
(42) Non-statistical sampling involvrandom selection and probability theory to evaluate the results.
(35) Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.
(36) Henrietta Lombardi assessed control risk to be low. What is the appropriate audit strategy she should adopt?
(34) When testing controls, sampling risk is the risk that the auditor:
(31) Tolerable error is the minimum error an auditor is willing to accept within the population tested.
(31) Which of the following is a factor that influencthe sample size when testing controls?
(37) For high-risk accounts, the timing of most audit procedurwill be:
(30) An increase in the number of sampling units in the population will result in a decrease in the sample size.
(36) Block selection involvthe selection of items that are grouped together within the population of items available.
(43) Identify and explain the factors that influence the sample size for tests of controls.
(38) When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.
(32) Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Karen Elliott was explaining to her group partner that the completeness assertion implies that transactions and events that have been recorded have occurred and pertain to the entity.
b) Joseph Cabana was explaining to Carl Metz how sampling risk works for the audit team: "Sampling risk is the risk that as auditors we will arrive at a conclusion that has nothing to do with sampling issues."
c) Robert Scardera was vehemently arguing about the benefits of using non-statistical versus statistical sampling methods for a client in the excavation business. Here is what he had to say about non-statistical sampling: "Non-statistical sampling is easier to use than statistical sampling, it requires less staff training, it has lower cost, and it allows an auditor to make a sample choice that they believe is appropriate."
d) Elaine Mathers has started her sample selection of sales transactions for a gemstone conglomerate. She believes that she can improve audit efficiency by stratifying the sample.
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