Summary-Chapter 9 Sampling 1. Define sampling 2. What is the purpose of sampling

Question

Summary-Chapter 9 Sampling 1. Define sampling 2. What is the purpose of sampling in auditing? 3. Risks are everywhere, even in sampling. What are the risks (and description) in sampling? 4. What type of sampling do auditors use? Name two advantages and two disadvantages of each 5. Why is random sampling statistically unbiased? 6. How do auditors select a random sample? 7. Are there other sampling methods used by auditors? Yes or NO. If yes, what are they? If no, how does this affect the audit? 8. What type of sampling is this? Number of Accounts Method of Selection Used Stratum Composition of Stratum 1 Accounts of $10,000 and over All accounts 2 Accounts of $5,000 to $9,999.99 50 accounts (random number generator) 3 Accounts of less than $5,000 30 accounts (random number generator)

Explanation / Answer

1) In simple terms sampling as a process used for statistical analysis, how it works is a sample is taken from a number of observations in a larger population.

2) It will reduce Work of a Audit staff by providing the basis for auditor to carryout work and is used as a tool for investigation.

3) There is risk in sampling as the sample selected in a sampling may not be the truly representative of the population being tested. Endup in wrong conclusion made in audit opinion.

4) Systematic Sampling

In Systematic sampling auditor select 1st Data randomly and then follow a sampling interval form of selection. For eg If 20 is the Sampling interval firstly auditor select "n"th sample let say 10 then follow range 30,50 and so on.

Advantage

Is easy to construct and so can be used in time constrained and project with tight budget.

There is a littile change of bias even first sample is random and follows a interval

Disadvantage

High chance of error since after nth sample there is a periodicity hidden. Can make use of this loophole.

Only Works in population is randomly arranged and if Population list has a order then it wouldnt be reliable.

5) Random sampling is considered as unbiased since every member of the population has an equal chance of getting selected.

6) Auditor will look for random numbers generated by the computer and make the selection of sample or select from a random number table with document numbers.

7) Yes. Other types of sampling used by auditors are:

8) It is Stratified Sampling

Stratified sampling is a probability sampling technique in which entire population is divided into different subgroups or strata. Then randomly selects the final samples(Data) proportionally from the different strata. In this case select samples from1,2 and 3 stratums separately

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