What is the benefit of using statistical sampling in testing the control procedures?
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Financial Management: Theory and Practice15th EditionEugene F. Brigham, Michael C Ehrhardt 218 solutions Asked by vlcasey8996 · What are the advantages and disadvantages of using statistical sampling when performing a test of controls or substantive testing. · What are the alternatives to sampling and when should they be implemented? Answer & Explanation Solved by verified expert Rated Helpful Answered by issalutana llentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquetUnlock full access to Course Hero Explore over 16 million step-by-step answers from our library Subscribe to view answer risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laore gue sus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec
facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Step-by-step explanation ng elit. N gue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing efacilisis. Pellentesquecongue ve s ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictuia pulvinar tortor nec facilisis. Pellentesque dapibus efficitsucing elit. ctum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a moliscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus essuongue vel lao Student reviews 100% (3 ratings) Auditors must test the effectiveness of internal controls before signing off on your financial statements. But it’s impossible to analyze every transaction that’s posted to the general ledger, due to time and budget constraints. Instead, auditors select and analyze a representative sample of transactions to make assertions about the entire population. Here’s more on how sampling works — along with the pros and cons of using it during internal control testing. Picking a sample Auditors may use statistical techniques to develop a sample of transactions to test. For example, an auditor might select enough transactions to represent a specific percentage of 1) the total transactions in an account, or 2) the company’s total assets or revenue. Alternatively, a sample of transactions may be pulled randomly using statistical sampling software. Auditors also can use nonstatistical sampling techniques based on a dollar threshold or professional judgment. These techniques tend to be more effective when the CPA has many years of audit experience to ensure that the sample chosen is representative of the population of transactions. Unexpected outcomes Before analyzing a sample, your auditor has expectations about the number of “exceptions” (such as errors and omissions) that will appear in the sample. If the actual exceptions exceed the auditor’s expectation, he or she may need to perform additional procedures. For instance, your auditor might expand the sample and conduct more testing to assess the degree of noncompliance. Ultimately, your auditor might conclude that your internal controls are ineffective. If so, he or she will perform more work to estimate the magnitude of the control failure. Pros vs. cons Sampling helps keep audit costs down by streamlining the internal control testing process. It also reduces disruptions to business operations during audit fieldwork. When applied correctly, the results of sampling are theoretically as accurate as if the audit team had analyzed every transaction posted to the general ledger. But, in practice, sampling can sometimes cause problems during internal controls testing. For example, sampling presumes that controls function consistently across the whole population of transactions. If an exception doesn’t appear in the sample — because the sample was too small or otherwise unrepresentative of the entire population — your audit team could reach the wrong conclusion about the effectiveness of your internal controls. There’s also a risk that your audit team could rely too heavily on nonstatistical sampling. Relying more on judgment than statistical methods could result in errors, especially if an auditor lacks professional experience. A collaborative process You can help maximize the benefits of sampling by providing the audit team with document requests in a timely manner and following up on your auditor’s management points at the end of each year’s audit. It’s frustrating to both auditors and business owners when internal control weaknesses recur year after year. Our auditors have extensive experience testing internal controls, and we’d be happy to answer any questions you have on testing and sampling techniques. © 2018 « Back Ben Forquer Director, Assurance & Business Advisory Services What are the advantages of statistical sampling?The primary advantage of using a statistical sampling approach is that risk is objectively determined. Using statistical tables, the auditor might reach this conclusion in a substantive test: at 5 percent risk, the amount of error in the population is between $5,000 and $9,000.
Why is statistical sampling useful in audit?statistical sampling provides greater objectivity in the sample selection and in the audit conclusion. Statistical Sampling can provide a valid and defensible methodology but it is important to match the type of sample needed to the type of analysis required.
What are the benefits of testing controls?The benefits of IT control testing include:. Accelerated employee onboarding.. Informed employees who understand controls responsibility and IT risk.. Time- and cost-savings when implementing new financial reporting systems.. Automated controls embedded in the company's enterprise resource planning (ERP) system.. What are the advantages and disadvantages of using statistical sampling?Advantages and Disadvantages of Sampling. Low cost of sampling.. Less time consuming in sampling.. Scope of sampling is high.. Accuracy of data is high.. Organization of convenience.. Intensive and exhaustive data.. Suitable in limited resources.. Better rapport.. |
