This post addresses auditing and audit issues
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1. Why do auditors find it necessary to use sampling? What are the risks associated with sampling? How might these risks affect the audit conclusion?
2. What is the importance of defining the population when performing audit procedures? How would defining the population affect the sample size? How would incorrectly defining the population affect the sampling unit?
3. How does the auditor evaluate the results of audit procedures? What types of qualitative factors might the audit consider when encountering an error? How might the results affect the audit conclusion?
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1. Why do auditors find it necessary to use sampling? What are the risks associated with sampling? How might these risks affect the audit conclusion?
Sampling is important for any audit because it's just not realistic in most audits to test 100% of every account. By using sampling, the auditor is able to test less than 100% of the account to arrive at a probable estimate of the error of misstatement within the accounts. If we're dealing with a client company that is extremely small and only has a handful of customers, the sample size could be the full 100% of the population. However, for the majority of audits the accounts are much larger. With a big manufacturing plant, we couldn't possibly test all 200,000 or so customer accounts or all 5,000 vendor account balances, so we draw a sample based on that population of 5,000 and then test our accounts. There will always be the risk that the auditor draws a sample that is not inclusive enough and then runs the risk of there being misstatements that go undetected. This would affect the audit conclusion because it would basically miss a material misstatement, which means ...
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