Audit Sampling – CA Inter Audit Notes is designed strictly as per the latest syllabus and exam pattern.

## Audit Sampling – CA Inter Auditing Notes

Question 1.

There is a growing realisation that the traditional approach to audit is economically wasteful because all efforts are directed to check all transactions without exception. Explain. [RTP-Nov. 19]

Answer:

Limitations of Traditional Approach:

- There is a growing realisation that the traditional approach to audit is economically wasteful because all efforts are directed to check all transactions without exception.
- Traditional Approach: In traditional approach, more emphasis put on routine checking, which often is not necessary considering the time and the cost involved. In routine checking auditor considers detailed checking and vouching of all entries.
- With the passage of time, formal internal controls are being introduced in the management of affairs of organisations, due to which the possibilities of routine errors and frauds have greatly diminished and auditors often find extensive routine checking as nothing more than a ritual because it rarely reveals anything material.
- Risk Based approach: Audit approach, now a days, has undergone considerable changes and the extent of checking are undergoing a progressive change in favour of more attention towards the questions of principles and controls with a curtailment of non-consequential routine checking.

Question 2.

The extent of the checking to be undertaken is primarily a matter of judgment of the auditor.

It is in the interest of the auditor that if he decides to form his opinion on the basis of a part checking, he should adopt standards and techniques which are widely followed. Explain. [RTP-Nov. 19]

Answer:

Adopting Standards while using Sampling:

- Auditor is required to express his opinion on the true and fair view of financial statements. For this purpose, auditor is required to decide the extent of checking to be performed. The extent of checking to be undertaken is primarily a matter of judgment of the auditor, there is nothing statutorily stated anywhere which specifies what work is to be done, how it is to be done and to what extent.
- It is also not obligatory that the auditor must adopt the sampling technique.
- To ensure good and reasonable standard of work, auditor should adopt standards and techniques that can lead him to an informed professional opinion. On a consideration of this fact, it can be said that it is in the interest of the auditor that if he decides to form his opinion on the basis of a part checking, he should adopt standards and techniques which are widely followed and which have a recognised basis.
- Since statistical theory of sampling is based on a scientific law, it can be relied upon to a greater extent than any arbitrary technique which lacks in basis and acceptability.

Question 3.

What is the meaning and purposes of sampling? Explain in the light of SA 520 “Audit Sampling”. [Nov. 06 (8 Marks)]

Answer:

Meaning and Purpose of Sampling:

As per SA 530 “Audit Sampling” Application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population is known as audit sampling.

Sampling is of two types: Statistical and Non-Statistical. Statistical sampling involves Random selection of the sample items and use of probability theory to evaluate sample results, including measurement of sampling risk.

Purpose of sampling:

- As per SA 200 “Overall Objectives of Independent Auditor and conduct of audit in accordance with SA” the purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. This is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
- In conducting an audit of financial statements, the overall objective of the auditor is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
- A complete checking of the transactions is necessarily time consuming and costly and even after complete checking is done, one may not be sure that no error or fraud exists in the accounts.
- It has been found that necessary audit satisfaction can be obtained by checking a part only because the part, if suitably selected, is supposed to possess the characteristics of the whole population.
- So, Audit sampling helps the auditor in obtaining reasonable assurance on the basis of examination of properly selected financial items.

Question 4.

Write short note on: Statistical and Non-Statistical Sampling.

Or

Whatever may be the approach non-statistical or statistical sampling, the sample must be representative. Discuss explaining Statistical and Non-Statistical sampling approaches. [RTP-May 18]

Answer:

Statistical and Non-Statistical Sampling:

An approach to sampling that has the following characteristics:

- Random selection of the sample items; and
- The use of probability theory to evaluate sample results, including measurement of sampling risk.

This method is more scientific as it involves use of laws of probability. This method has reasonably wide application where a population consists of a large number of similar items

Non-Statistical Sampling:

- A sampling approach that does not have characteristics of random selection and use of probability theory is considered as non-statistical sampling.
- In this method, the sample size and its composition are determined on the basis of personal experience and knowledge of the auditor.
- This method because of its simplicity in operation was in common application for many years.

Whatever may be the approach non-statistical or statistical sampling, the sample must be representative. It implies that sample must be closely similar to the whole population although not necessarily exactly the same. The sample must be large enough to provide statistically meaningful results.

Question 5.

Write short note on: Advantages of Statistical Sampling. [Nov. 11, May 14 (4 Marks)]

Or

Audit testing done through Statistical sampling is more scientific than testing based entirely on the auditor’s own judgment because it involves use of mathematical laws of probability in determining the appropriate sample size in varying circumstances. Explain and also state advantages of Statistical sampling. [MTP-Oct. 20]

Answer:

Advantages of Statistical Sampling:

Audit testing done through Statistical sampling is more scientific than testing based entirely on the auditor’s own judgment because it involves use of mathematical laws of probability in determining the appropriate sample size in varying circumstances. Statistical sampling has reasonably wide application where a population to be tested consists of a large number of similar items and more in the case of transactions involving compliance testing, trade receivables’ confirmation, payroll checking, vouching of invoices and petty cash vouchers.

The advantages of statistical sampling may be summarized as follows:

- The amount of testing (sample size) does not increase in proportion to the increase in the size of the area (universe) tested.
- The sample selection is more objective and thereby more defensible.
- The method provides means of estimating the minimum sample size associated with a specified risk & precision.
- It provides a means for deriving a “calculated risk” and corresponding precision (sampling error) i.e. the probable difference in result due to the use of a sample in lieu of examining all the records in the group (universe), using the same audit procedures.
- It may provide a better description of a large mass of data than a complete examination of all the data, since non-sampling errors such as processing and clerical mistakes are not as large.

Question 6.

“The auditor is faced with sampling risk in both tests of control and substantive procedures”. Comment on this statement with reference to SA 530 on Audit Sampling. [Nov. 10 (8 Marks)]

Or

While planning the audit of S Ltd., you want to apply sampling techniques. What are the risk factors you should keep in mind? [RTP-Nov. 18, MTP-April 19]

Or

“Sampling risk can lead to erroneous conclusion”. Justify. [May 19 (4 Marks)]

Answer:

Sampling Risk:

SA 530 “Audit Sampling” deals with auditor use of sampling in performing audit procedures. However, due to application of sampling in audit procedures, there arise risk of sampling.

Sampling Risk may be defined as the risk that the auditor’s conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.

Sampling risk can lead to two types of erroneous conclusions:

- In the case of a test of controls, that controls are more effective than they actually are, or in the case of a test of details, that a material misstatement does not exist when in fact it does. The auditor is primarily concerned with this type of erroneous conclusion because it affects audit effectiveness and is more likely to lead to an inappropriate audit opinion.
- In the case of a test of controls, that controls are less effective than they actually are, or in the case of a test of details, that a material misstatement exists when in fact it does not. This type of erroneous conclusion affects audit efficiency as it would usually lead to additional work to establish that initial conclusions were incorrect.

Question 7.

Sampling risk is the risk that the auditor’s conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure. Sampling risk leads to erroneous conclusions. Explain in detail distinguishing it from non-sampling risk with examples. [RTP-Nov. 20]

Answer:

Sampling and Non-sampling Risk:

- In the case of a test of controls, that controls are more effective than they actually are, or in the case of a test of details, that a material misstatement does not exist when in fact it does. The auditor is primarily concerned with this type of erroneous conclusion because it affects audit effectiveness and is more likely to lead to an inappropriate audit opinion.
- In the case of a test of controls, that controls are less effective than they actually are, or in the case of a test of details, that a material misstatement exists when in fact it does not. This type of erroneous conclusion affects audit efficiency as it would usually lead to additional work to establish that initial conclusions were incorrect.

Non-Sampling Risk:

The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk. Non sampling risk can never be mathematically measured.

Examples of non-sampling risk include use of inappropriate audit procedures, or misinterpretation of audit evidence and failure to recognize a misstatement or deviation.

Sources of Non-Sampling risk are:

- Human Mistakes
- Misinterpreting the sample results
- Applying audit procedures not appropriate to the objectives of audit
- Relying on erroneous information

Question 8.

Discuss the following: As per SA 530, meaning of audit sampling, sample design, sample size and selection of items for testing. [Nov. 13 (5 Marks)]

Or

Discuss the following: With reference to SA 530, meaning of audit sampling and requirements relating to sample design, sample size and selection of items for testing. [May 16 (5 Marks)]

Answer:

Meaning of Audit Sampling, Sample Design, Sample Size and Selection of items for testing:

Audit Sampling: Application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population is known as audit sampling.

Requirement of SA 530 as to Sample Design, Size and Selection of Items for Testing

- When designing an audit sample, the auditor shall consider the purpose of the audit procedure and the characteristics of the population from which the sample will be drawn.
- The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level.
- The auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection.

Question 9.

Write short note on: Stratified sampling. [May 11 (5 Marks)]

Answer:

Stratified Sampling:

This method involves dividing the whole population to be tested into a few groups called strata and taking a sample from each of them. Each stratum is treated as if it were a separate population and proportionate items are selected from each of the stratum. The groups into which the whole population is divided is determined by the auditor on the basis of his judgment e.g. entire expense vouchers may be divided into:

- Vouchers above ₹ 1,00,000
- Vouchers between ₹ 25,000 and ₹ 1,00,000
- Vouchers below ₹ 25,000

The auditor can then decide to check all vouchers above ₹ 1,00,000, 50% between 25,000 and ₹ 1,00,000 and 25% of those below ₹ 25,000.

The reasoning behind the stratified sampling is that for a highly diversified population, weights should be allocated to reflect these differences. This is achieved by selecting different proportions from each strata.

Question 10.

XYZ Ltd. is engaged in trading of electronic goods and having huge accounts receivables. For analysing the whole accounts receivables, auditor wanted to use sampling technique. In considering the characteristics of the population from which the sample will be drawn, the auditor determines that stratification or value-weighted selection technique is appropriate. SA 530 provides guidance to the auditor on the use of stratification and value-weighted sampling techniques. Advise the auditor in accordance with SA 530. [RTP-May 18, MTP-Oct. 19]

Answer:

Stratification and Value-Weighted Selection:

As per SA 530 “Audit Sampling”, the objective of the auditor when using audit sampling is to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected. Accordingly, in considering the characteristics of the population from which the sample will be drawn, the auditor may determine that stratification or value-weighted selection is appropriate.

Stratification:

Stratification may be defined as the process of dividing a population into sub-populations, each of which is a group of sampling units which have similar characteristics [often monetary value).

Every such group so divided is called strata. Each stratum is treated as if it were a separate population and proportionate items are selected from each of the stratum. The groups into which the whole population is divided is determined by the auditor on the basis of his judgment e.g. entire expense vouchers may be divided into:

- Vouchers above ₹ 1,00,000
- Vouchers between ₹ 25,000 and ₹ 1,00,000
- Vouchers below ₹ 25,000

The auditor can then decide to check all vouchers above ₹ 1,00,000, 50% between ₹ 25,000 and ₹ 1,00,000 and 25% of those below ₹ 25,000.

The reasoning behind the stratified sampling is that for a highly diversified population, weights should be allocated to reflect these differences. This is achieved by selecting different proportions from each strata.

Value-weighted Selection:

- When performing tests of details, it may be efficient to identify the sampling unit as the individual monetary units that make up the population.
- One benefit of this approach to defining the sampling unit is that audit effort is directed to the larger value items because they have a greater chance of selection and can result in smaller sample sizes.
- This approach may be used in conjunction with the systematic method of sample selection and is most efficient when selecting items using random selection.

Question 11.

Discuss the following: The level of sampling risk that the auditor is willing to accept affects the sample size required. The lower the risk the auditor is willing to accept, the greater the sample size will need to be. Explain Stating the examples of factors that the auditor may consider when determining the sample size for tests of controls. [MTP-March 18]

Or

The sample size can be determined by the application of a statistically-based formula or through the exercise of professional judgment. When circumstances are similar, the effect on sample size of factors will be similar regardless of whether a statistical or non-statistical approach is chosen.

Explain Stating the examples of factors that the auditor may consider when determining the sample size for tests of controls. [MTP-Oct. 18, March 19, May 20]

Answer:

Factors to be considered while determining sample size for tests of controls:

The level of sampling risk that the auditor is willing to accept affects the sample size required. The lower the risk the auditor is willing to accept, the greater the sample size will need to be.

The sample size can be determined by the application of a statistical-based formula or through the exercise of professional judgment. When circumstances are similar, the effect on sample size of factors will be similar regardless of whether a statistical or non-statistical approach is chosen.

Examples of Factors Influencing Sample Size for Tests of Controls:

- An increase in the extent to which the auditor’s risk assessment takes into account relevant controls will increase the sample size. –
- An increase in the tolerable rate of deviation, will decrease the sample size.
- An increase in the expected rate of deviation of the population to be tested, will increase the sample size.
- An increase in the auditor’s desired level of assurance that the tolerable rate of deviation is not exceeded by the actual rate of deviation in the population will increase the sample size.

Question 12.

Discuss the following: Factors that should be considered for deciding upon the extent of checking on a sampling plan. [Nov. 18 (5 Marks), RTP-Nov. 20]

Or

Discuss the factors that should be considered for deciding upon the extent of checking on a sampling plan. [RTP-May 19]

Answer:

Factors to be consider ed to decide extent of checking:

[A] Factors Influencing extent of checking for Tests of Controls:

- An increase in the extent to which the auditor’s risk assessment takes into account relevant controls will increase the sample size.
- An increase in the tolerable rate of deviation, will decrease the sample size.
- An increase in the expected rate of deviation of the population to be tested, will increase the sample size.
- An increase in the auditor’s desired level of assurance that the tolerable rate of deviation is not exceeded by the actual rate of deviation in the population will increase the sample size.

(B) Factors influencing extent of checking for Tests of Details:

- An increase in the auditor’s assessment of the risk of material misstatement will increase the extent of checking.
- An increase in the use of other substantive procedures directed at the same assertion will decrease the extent of checking.
- An increase in the auditor’s desired level of assurance that tolerable misstatement is not exceeded by actual misstatement in the population will increase the extent of checking.
- An increase in tolerable misstatement will decrease the extent of checking.
- An increase in the amount of misstatement the auditor expects to find in the population will increase the extent of checking.
- Stratification of the population when appropriate will decrease the extent of checking.

Note: Simplified answer as given in Suggested Answers of ICAI is as below:

The factors that should be considered for deciding upon the extent of checking on a sampling plan are following:

- Size of the organisation under audit.
- State of the internal control.
- Adequacy and reliability of books and records.
- Tolerable error range.
- Degree of the desired confidence.

Question 13.

Describe the Principal methods of selection of sample.

Answer:

Meaning of Sampling and Methods of Selection of Samples:

As per SA 530 “Audit Sampling” Application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population is known as audit sampling.

As per SA 530 “Audit Sampling” principal methods of selection of samples are:

1. Random selection: This method of sampling ensures that all items within a population stand an equal chance of selection by the use of random number tables or random number generators. The sampling units could be physical items, such as sales invoices or monetary units.

2. Systematic selection: The number of sampling units in the population is divided by the sample size to give a sampling interval, for example 50, and having determined a starting point within the first 50, each 50th sampling unit thereafter is selected.

3. Monetary UnitSampling: Itis a type ofvalue-weighted selection in which sample size, selection and evaluation results in a conclusion in monetary amounts.

4. Haphazard selection: Samples are selected without following a structured technique. Although no structured technique is used, the auditor would nonetheless avoid any conscious bias or predictability. Haphazard selection is not appropriate when using statistical sampling.

5. Block selection: It involves selection of a block(s) ofcontiguousitemsfromwithinthe’population. Block selection cannot ordinarily be used in audit sampling because most populations are structured such that items in a sequence can be expected to have similar characteristics to each other, but different characteristics from items elsewhere in the population.

Question 14.

Write short note on: Random Sampling. [May 12, May 15 (4 Marks), May 17 (6 Marks)]

Answer:

Selection of Samples on random basis:

- As per SA 530 “Audit Sampling” sampling means application of audit procedures to less than 10 0% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
- Statistical sampling is an approach to sampling that has the following characteristics:
- Random selection of the sample items; and
- The use of probability theory to evaluate sample results, including measurement of sampling risk.

- Essential features of statistical sampling are random selection and use of probability theory. Examples of Statistical sampling are Random selection, Systematic Selection and Monetary Unit Sampling.
- Audit sample collection on a random basis ensures that all items within a population have an equal chance of selection by the use of random number tables or random number generators. This method is considered appropriate provided the population to be sampled consists of reasonably similar units and falls within a reasonable range.

Question 15.

Write short note on: Haphazard sampling. [Nov. 17 (4 Marks)]

Answer:

Haphazard Sampling:

- As per SA 530 “Audit Sampling” sampling means application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
- In case of haphazard sampling, samples are selected without following a structured technique.
- Although no structured technique is used, the auditor would nonetheless avoid any conscious bias or predictability (for example, avoiding difficult-to-locate items, or always choosing or avoiding the first or last entries on a page) and thus attempt to ensure that all items in the population have a chance of selection.
- Haphazard selection is not appropriate when using statistical sampling.
- It may be accepted as alternative to random sampling, provided the auditor attempts to draw a representative sample from the population without any biasness.

Question 16.

Explain the sampling method which involves selection of a block (s) of contiguous items from within the population. Also give example. [RTP-May 20]

Answer:

Block Selection:

- It involves selection of a block(s) of contiguous items from within the population.
- Block selection cannot ordinarily be used in audit sampling because most populations are structured such that items in a sequence can be expected to have similar characteristics to each other, but different characteristics from items elsewhere in the population.
- In some circumstances it may be an appropriate audit procedure to examine a block of items, it would rarely be an appropriate sample selection technique when the auditor intends to draw valid inferences about the entire population based on the sample.

Example: Take the first 500 purchase invoices from the purchase daybook in the month of October; alternatively take any ten blocks of 50 purchase invoices. Therefore, once the first item in the block is selected, the rest of the block follows items to the completion.

Question 17.

“In cases where audit sample selection has been done on a random basis, no statistical process for selection of samples needs to be followed”. Comment.

Answer:

Selection of Samples on random basis:

- As per SA 530 “Audit Sampling” means application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
- Statistical sampling is an approach to sampling that has the following characteristics:
- Random selection of the sample items; and
- The use ofprobability theory to evaluate sample results, including measurement of sampling risk.

- Essential features of statistical sampling are random selection and use of probability theory. Examples of Statistical sampling are Random selection, Systematic Selection and Monetary Unit Sampling.
- Audit sample collection on a random basis ensures that all items within a population have an equal chance of selection by the use of random number tables or random number generators. This method is considered appropriate provided the population to be sampled consists of reasonably similar units and falls within a reasonable range.

Conclusion: For application of statistical sampling techniques, one of the prerequisite is selection on random basis, hence in case of selection of an audit sample on random basis, no other statistical process for selection of samples need to be followed.

Question 18.

The auditor is required to project misstatements for the population to obtain a broad view of the scale of misstatement. Explain. [RTP-May 19]

Or

The auditor is required to project misstatements for the population to obtain a broad view of the scale of misstatement but this projection may not be sufficient to determine an amount to be recorded. Explain. [RTP-May 20]

Or

It is imperative for the auditor to project misstatements for the population while performing audit procedures through sampling. Comment. [Nov. 20 (3 Marks}]

Answer:

Projection of Misstatements:

- As per SA 530 “Audit Sampling” the auditor is required to project misstatements for the population to obtain a broad view of the scale of misstatement but this projection may not be sufficient to determine an amount to be recorded.
- When a misstatement has been established as an anomaly, it may be excluded when projecting misstatements to the population. However, the effect of any such misstatement, if uncorrected, still needs to be considered in addition to the projection of the non-anomalous misstatements.
- For tests of details, the auditor shall proj ect misstatements found in the sample to the population whereas for tests of controls, no explicit projection of deviations is necessary since the sample deviation rate is also the projected deviation rate for the population as a whole.

Question 19.

The auditor shall evaluate the results of the sample and whether the use of audit sampling has provided a reasonable basis for conclusions about the population that has been tested. Explain.

Answer:

Evaluating Results of Audit Sampling:

The auditor shall evaluate

(a) the results of the sample and

(b) determine whether the use of audit sampling has provided a reasonable basis for conclusions about the population that has been tested.

- For tests of controls, an unexpectedly high sample deviation rate may lead to an increase in the assessed risk of material misstatement, unless further audit evidence substantiating the initial assessment is obtained. For tests of details, an unexpectedly high misstatement amount in a sample may cause the auditor to believe that a class of transactions or account balance is materially misstated, in the absence of further audit evidence that no material misstatement exists.
- In case the auditor concludes that audit sampling has not provided a reasonable basis for conclusions about the population that has been tested, the auditor may request management to investigate misstatements that have been identified and the potential for further misstatements and to make any necessary adjustments; or tailor the nature, timing and extent of those further audit procedures to best achieve the required assurance. For example, in the case of tests of controls, the auditor might extend the sample size, test an alternative control or modify related substantive procedures.
- If any error or misstatement identified, auditor shall investigate its nature and cause, and evaluate their possible effect on the purpose of the audit procedure and on other areas of the audit.
- In analysingthe deviations and misstatements identified, the auditor would also need to consider the qualitative aspects of the misstatements identified by him,
- While evaluating the misstatements, auditor may observe that many have a common feature, for example, type of transaction, location, product line or period of time. In such circumstances, the auditor may decide to identify all items in the population that possess the common feature, and extend audit procedures to those items. In addition, such deviations or misstatements may be intentional, and may indicate the possibility of fraud.

Question 20.

“An Auditor while analyzing the errors in a sample need not consider the qualitative aspects of errors detected.” Comment.

Answer:

Evaluating Results of Audit Sampling:

The auditor shall evaluate:

(a) the results of the sample and

(b) determine whether the use of audit sampling has provided a reasonable basis for conclusions about the population that has been tested.

- If any error or misstatement identified, auditor shall investigate its nature and cause, and evaluate their possible effect on the purpose of the audit procedure and on other areas of the audit.
- In analysing the deviations and misstatements identified, the auditor would also need to consider the qualitative aspects of the misstatements identified by him.
- While evaluating the misstatements, auditor may observe that many have a common feature, for example, type of transaction, location, product line or period of time. In such circumstances, the auditor may decide to identify all items in the population that possess the common feature, and extend audit procedures to those items. In addition, such deviations or misstatements may be intentional, and may indicate the possibility of fraud.

Objective Type Questions (True/False, Correct/Incorrect)

Question 1.

Universe refers to the entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions.

Answer:

Statement is incorrect.

Entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions, is known as Population.

Question 2.

Non-Statistical sampling is an approach to sampling that has the random selection of the sample items; and the use of probability theory to evaluate sample results, including measurement of sampling risk characteristics.

Answer:

Statement is correct.

Approach to sampling that has the random selection of the sample items; and the use of probability theory to evaluate sample results, including measurement of sampling risk characteristics is statistical approach.

Non-statistical sampling approach does not have characteristics of random selection and use of probability theory.

Question 3.

Sample need not be representative

Answer:

Statement is incorrect.

- Sample need to be representative of entire population, irrespective of approach non-statistical or statistical sampling.
- Samples must be closely similar to the whole population although not necessarily exactly the same.

Question 4.

The objective of stratification is to increase the variability of items within each stratum and therefore allow sample size to be reduced without increasing sampling risk.

Answer:

Statement is incorrect.

- Stratification implies conversion of heterogeneous population into homogeneous groups known as strata.
- The objective of stratification is to reduce the variability of items within each stratum and therefore allow sample size to be reduced without increasing sampling risk.

Question 5.

While auditing the accounts of a company, it is obligatory that the auditor must adopt sampling technique. [Nov. 09 (2 Marks)]

Answer:

Statement is Incorrect.

It is not obligatory that the auditor must adopt sampling technique in auditing the accounts. But he should ensure that the relevant SA 530 “Audit Sampling” has been followed. It is in the interest of the auditor if he decides to form his opinion on the basis of audit sample using standards and techniques which are widely followed and recognised.

Question 6.

Cluster sampling is less effective than random sampling. [May 16 (2 Marks)]

Answer:

Statement is correct.

In cluster sampling each item within the population is not selected on random basis, hence may be biased.

Question 7.

The method which involves dividing the population into group of items is known as block sampling. [Nov. 16 (2 Marks), MTP-Oct. 19]

Answer:

Statement is incorrect.

- Dividing the population into groups of items is known as cluster sampling.
- Block sampling involves the selection of a defined block of consecutive items.

Question 8.

According to SA 530 “Audit sampling” ‘audit sampling’ refers to the application of audit procedures to 100% of items within a population of audit relevance. [MTP-March 18]

Answer:

Statement is incorrect.

As per SA 5 3 0 “Audit sampling”, ‘audit sampling’ refers to the application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.

Question 9.

When statistical sampling is used to select a sample, sample need not be representative because the statistical sampling takes care of the representation. [May 18 (2 Marks)]

Answer:

Statement is incorrect.

Sample should be selected in such a manner that it is representative of the population from which the sample is being selected. Whatever may be the approach non-statistical or statistical sampling, the sample must be representative.

Question 10.

Stratified Sampling involves dividing the whole population to be tested in a few separate groups called strata and taking a sample from each of them. [MTP-Oct. 18]

Answer:

Statement is correct.

- Stratified Sampling involves dividing the whole population to be tested in a few separate groups called strata and taking a sample from each of them.
- Each stratum is treated as if it was a separate population and proportionate of items are selected from each of these stratum.
- The number of groups into which the whole population has to be divided is determined on the basis of auditor judgment.

Question 11.

Sample size is not a valid criterion to distinguish between statistical and non-statistical approaches. [MTP-April 19]

Answer:

Statement is correct.

The decision whether to use a statistical or non-statistical sampling approach is a matter for the auditor’s judgment; however, sample size is not a valid criterion to distinguish between statistical and non-statistical approaches.