Question

For each of the following independent statements, state whether you agree or disagree with the statement and explain your answer.

Required

a.        The tolerable deviation rate varies inversely with sample size.

b.        Inspection of signatures on time cards is an example of attribute sampling.   

c.        Sampling error occurs when an auditor incorrectly interprets the results of the sample.

d.        Statistical and non statistical sampling allow the auditor to quantify sampling risk.

e.        It is the auditor's responsibilities to ensure that an external expert engaged to support that audited financial statements has the appropriate qualifications and reputation within their field of expertise.

Answer 1

a. The tolerable deviation Rate varies inversely with sample size.

Ans: Yes. I agree with the given statement. The tolerable Deviation rate decreases when the sample size increases. There is an inverse relationship between the sample size and the tolerable deviation rate. When the sample size increases the auditor is able to judge moe effectively and thereby the tolerable deviation rate decreases.

b. Inspection of signatures on time cards is an example of attributable sampling.

Ans: Yes. I agree with the given statement. Attributable Sample involves identifying a small number of transactions and checking for the charecteristics such as presence of signatures, authorised approvals etc., The results of this test will then compared to that the tolerable error rate planned for that test.

c.  Sampling error occurs when an auditor incorrectly interprets the results of the sample.

Ans: No. The statement is wrong. Sampling error occurs when there is a deviation between the result of the sample used by the auditor and the result obtained when the entire population verified by the auditor.

d.   Statistical and non statistical sampling allow the auditor to quantify sampling risk.

Ans: Partly Agree and partly doesnot agree. Statistical Sampling helps in quantifying the sampling risk. Non-Statistical Sampling doesn't quantify the sampling risk. In statistical Sampling, there is an equal chance of selection for every item in the entire population where as in non statistical sampling, the sample selection is based on the judgement of the auditor.

e. It is the auditor's responsibilities to ensure that an external expert engaged to support that audited financial statements has the appropriate qualifications and reputation within their field of expertise.

Ans: Yes. I agree with the given statement. As per IAS 620 (Using the work of an external expert), when the auditor uses the work of the external expert then the auditor shall evaluate whether the expert has appropriate qualifications and reputation in that field before using the work of an expert during the audit.