High School

Why do auditors have to rely on a sample from a larger population? What is sampling risk and how do they address it?

2. What type of classical variables sampling is used when small accounts are expected to have small misstatements and large accounts are expected to have large misstatements?

-mean per unit

-difference

-ratio

-discovery sampling

3. What kind of sampling technique is best to use when auditors expect to find no deviations?

-mean per unit

-difference

-ratio

-discovery sampling

4. What is considered to be a limitation of internal control?

-The composition of the audit committee

-The salaries paid to top management

-The reliance on judgement when decisions are being made

-The external environment within which a company operates

5. What would an auditor be most concerned about regarding their audit client's internal auditor?

-Who the internal auditor reports to

-The highest college degree achieved by the internal auditor

-How many years the internal auditor has been employed with the company

-How much training the internal auditor has had

Answer :

Final answer:

Auditors utilize sampling to extract information about larger populations. They use mean per unit for accounts where misstatements match the accounts' sizes. When no deviations are expected, auditors use discovery sampling. A major limitation of internal control is decision-making reliance on judgement. Auditors pay significant attention to the reporting line of an internal auditor.

Explanation:

Auditors rely on a sample from a larger population as it's often impractical and inefficient to examine each item within a large population individually. Therefore, sampling offers a feasible way to gather information and make inferences about a population. Sampling risk is the risk that the sample may not accurately represent the population. Auditors can address this risk by selecting a proper sample size and ensuring the sample is randomly chosen to represent the whole population.

The mean per unit method could be applied when small accounts are expected to have small misstatements and large accounts are expected to have large misstatements.

When auditors expect to find no deviations, discovery sampling would be the best sampling technique.

A significant limitation of internal control is the reliance on judgement when decisions are being made.

An auditor would be most concerned about who the internal auditor reports to, as this can affect their independence and perceived objectivity.

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Final answer:

Auditors use sampling from a population due to practical limitations and manage sampling risk through careful selection of samples. Mean per unit sampling is used for varying account sizes, discovery sampling when no deviations are expected. Limitations of internal controls include judgment reliance, and auditors are concerned with the reporting structure of an internal auditor.

Explanation:

1. Auditors rely on a sample from a larger population because it's often impractical, time-consuming, and costly to examine all items within a population. Sampling risk is the risk that the auditor's sample may not accurately represent the population. Auditors address sampling risk by selecting a sufficient, randomly chosen sample which would give the most representative outcome of the whole population.

2. The mean per unit sampling is utilized when small accounts are expected to have small misstatements and large ones to have large misstatements as it works well with varied transaction sizes.

3. The best sampling method when auditors expect to find no deviations is discovery sampling. This method is used when the auditor believes the condition should be absent and is focusing on the discovery of exceptions.

4. A limitation of internal control is the reliance on judgement when decisions are being made. Errors can emerge when the judgment or decision made ends up being incorrect.

5. An auditor would be most concerned about who the internal auditor reports to regarding the audit client's internal auditor. This is to ensure the independence of the internal audit function which is crucial for its effectiveness.

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