Explain with examples what you understand by sampling risk and non-sampling risk?

Explain with examples what you understand by sampling risk and non-sampling risk?

Explain with examples what you understand by sampling risk and non-sampling
risk? How does statistical sampling differ from non-statistical sampling and how
would an auditor decide which method to use?

 

You are part of the team for the audit of Sunway Trading Sdn. Bhd., a large trading
company dealing in consumable products in Kuala Lumpur.
The following facts are relevant to the current audit:
Financial year: 1 December 2012 to 30 November 2013
Purchase Order numbers issued during the financial year are 100326 to 103500.
Required:
(a) Explain with examples what you understand by sampling risk and non-sampling
risk? How does statistical sampling differ from non-statistical sampling and how
would an auditor decide which method to use?
(10 marks)
(b) Explain using the following steps and the random number table provided how you
would perform the audit procedure in testing the controls mentioned in (i) below:
(i) Describe two internal controls that you would like to see present in the
Purchase Orders selected for the tests
(ii) Determine the test objectives
(iii) Determine the population
(iv) Define the deviation condition (Materiality is set at >5%)
(v) Determine the sample size (Firm’s practice is set at 25 units)
(vi) Determine the method of selecting the sample (Random Number Table,
Pages 12 and 13, from Column (1) followed by Column (2) and so on and
using the first four digits displayed in the Random Numbers.)
(vii) List the twenty five (25) random numbers selected for use. Rearrange in
ascending order the random numbers selected and list ONLY ten (10)
Purchase Orders (with their respective numbers) selected for testing of the
two controls that you mentioned in (i) above.
(viii) Describe how the audit procedure is to be performed.
(ix) Evaluate the sample results and reach conclusions.
(15 marks)
[25 marks]