ACCY 131 PI-3 Solutions

ACCY 131 PI-3 Solutions -...

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Individual Problem Set #3 (PI 3): Chapters 9 11 Review Questions (5 points total; 1 point each): Ch 9 Define sampling risk and non sampling risk. How does sampling risk differ from non sampling risk? ANS Sampling risk is the possibility that the auditors will make an erroneous decision based on a sample result. To control sampling risk the auditors increase the size of their samples. Nonsampling risk is the risk of erroneous conclusions by the auditors based on any factor other then sampling. For example, the auditors may perform inappropriate tests, or they may not recognize errors in the sample items examined. Nonsampling risk may be controlled by adequate planning and supervision of engagements, and the establishment of effective quality control policies and procedures. Sampling risk is different from non sampling risk in that auditing will, by its nature, involve some level of sampling risk. On the other hand, auditors should seek to eliminate non sampling risk through adequate training, planning and supervision. Ch 9 Why it is important to carefully consider the population of items (or transactions) when sampling in an audit? (Note: we discussed two reasons in class) ANS: First, there are several qualitative characteristics about a population that auditors need to consider. These qualitative elements will ultimately affect an auditor’s sampling decisions because they are critical for identifying a representative sample, which relates most to the effectiveness of the audit. Qualitative characteristics may include: a. Nature of items, transactions, accounts to be included in the population, primarily focusing on the reliability of the population as audit evidence (e.g. computer
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ACCY 131 PI-3 Solutions -...

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