Leads to audit inefficiency correct conclusion

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(leads to audit inefficiency) Correct conclusion Selecting a sampling approach Statistical sampling is objective, helps in designing efficient samples,  allows measurement of the sufficiency of evidence, allows evaluation of  results Non-statistical sampling does not allow the auditor to statistically control  for the risk of incorrect decision-making Statistical sampling provides quantitative measures of: o Most likely and maximum failure rate of a control procedure o Most likely and maximum amount of misstatement in the account  balance o Risk that the auditor may make an incorrect judgment about the state  of controls or correctness of an account balance  Auditor should consider whether the sample results are caused by errors,  indicate the possibility of fraud, and how the control failures impact other  phases of the audit  Nonstatistical sampling Statistical sampling Sample size Determined by auditor judgment Auditor judgment is quantified and sample size determined by probability theory Sample Any method that the auditor believes is The sample must be randomly selected to give
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Tools to gather audit evidence 15:19 selection representative of the population; either haphazard or random-based selection can be used. Judgment sampling can also be directed at portion of the population, e.g. all transactions during the last 5 days of the year each item in the population an equal change to be included in the sample. The population of interest can also be directed, e.g. the transactions during the last 10 days of the year can be statistically selected Evaluatio n Based on auditor judgment Statistical inference is used to assist auditor judgment Cost Benefit Nonstatistic al sampling Requires audit judgment to determine an appropriate sample size and evaluate the results Dos not provide an objective way to control and measure sampling risk Does not require additional software Can be based on auditor’s prior expectations about errors in the account May take less time to plan, select and evaluate the sample Statistical sampling Requires knowledge of statistical sampling methods and/or special computer sampling software is required and often involves training costs Requires definitions of acceptable risk and sample objectives to be made in advance Helps the auditor: Design an efficient sample Measure the sufficiency of the evidence Evaluate the results by providing an objective measure of sampling risk Gain efficiencies through computerized selection and statistical evaluation Defend sample inferences because they are based on statistical theory
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Tools to gather audit evidence 15:19 Testing controls effectiveness and compliance Auditor is attempting to gather evidence on the effectiveness of the client’s 
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