Answer the below questions from chapter 15: 1. Describe the differences between statistical and non-statistical sampling in terms of (1) the sample selection methods used, and (2) quantification of sampling risk. Ans: Nonstatistical sampling differs from statistical sampling in that non-probabilistic sampling can be used for the former but not the latter. In addition, sampling risk can be quantified when using statistical sampling but not when using nonstatistical sampling. 2. Directed sample selection is the selection of each item in the sample based on some judgment criteria established by the auditor.Discuss three commonly used criteria. ANS: Commonly-used criteria used in directed sample selection are: •Items most likely to contain misstatements; for example, unusual or complex transactions, overdue receivables. •Items containing selected population characteristics, such as transactions selected from each month during the year or from each location. •Large dollar coverage in which the auditor focuses on selecting the relatively large items in the population for testing. 3. What is the key advantage and disadvantage associated with systematic sample selection? How must auditors address this disadvantage?Ans: The key advantage is its ease of use. Generally, systematic samples are easily drawn from the population and supporting documentation is easily developed. The key disadvantage is the potential for bias. Once the first item in the sample is selected, all other items are chosen automatically. Auditors should be careful to consider any potential pattern in the data prior to selecting their sample to ensure that their selection considers the possible bias. 4. Describe each of the four types of sample selection methods commonly associated with statistical audit sampling.Ans: Four types of sample selection methods commonly associated with statistical audit sampling are: •Simple random sample selection. Every possible combination of elements in the population has an equal chance of constituting the sample. •Systematic sample selection. A probabilistic method of sampling in which the auditor calculates an interval (the population size divided by the number of sample items desired) and selects the items for the sample based on the size of the interval and a randomly selected number between zero and the interval size. •Probability proportional to size sample selection.The probability of selecting any individual population item is proportional to its recorded amount. •Stratified sample selection. A probabilistic method of sampling in which the population is divided into subpopulations, and sub-samples are taken from each of the subpopulations. 5. There are 14 steps to attributes sampling, divided into three sections: plan the sample, select the sample and perform the audit procedures, and evaluate the results. In the planning section there are 9 steps, beginning with “state the audit objective” and ending with “determine the initial sample size”.Name and discuss at least 3 steps between the ones listed above. Ans: The steps that comprise the “plan the sample” section in attributes sampling are: 1. State the objectives of the audit test. Typically, in attributes sampling, the overall objective is to test the application of controls and determine whether transactions contain monetary misstatements. 2. Decide if audit sampling applies. Audit procedures involving documentation normally can be performed using sampling, whereas procedures involving observation, inquiry of the client, and analytical procedures are not suited to audit sampling. . Define attributes and exception conditions. In this step, the auditor carefully defines the attributes of interest and the conditions that constitute exceptions or errors. 4. Define the population. The population is the body of data about which the auditor wished to generalize, from which the sample must be drawn. 5. Define the sampling unit. In attributes sampling, the sampling unit is normally a document, identified by document numbers, or a transaction recorded in a journal. 6. Specify tolerable exception rate.This is the exception rate that the auditor will permit in the population and still be willing to rely on internal controls. 7. Specify acceptable risk of assessing control risk too low. This is the risk that the auditor is willing to take in accepting a control as effective when the true population exception rate is greater than the tolerable exception rate. 8. Estimate the population exception rate. This is the exception rate the auditor expects to find in the population before testing begins. 9. Determine the initial sample size.The initial sample size is determined from tables, based on values for the tolerable exception rate, acceptable risk of assessing control risk too low, and the estimated exception rate. Week 12 – Part B: Match eight of the terms (a-k) with the definitions provided below (1-8): a. Haphazard selection b. Attributes sampling c. Block sample selection d. Judgmental sampling e. Non-probabilistic sample selection f. Probabilistic sample selection g. Random sample h. Representative sample i. Statistical sampling . Systematic sample selection k. Sampling distribution ANSWERS: _i______ 1. The use of mathematical measurement techniques to calculate formal statistical results and quantify sampling risk. __c______ 2. A non-probabilistic method of sample selection in which items are selected in measured sequences. __h_____ 3. A sample whose characteristics are the same as those of the population. __b______ 4. A statistical, probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic of interest. __a______ 5.A non-probabilistic method of sample selection in which items are chosen without regard to their size, source, or other distinguishing characteristics. __f______ 6. An auditor selects items such that each population item has a known probability of being included in the sample. __k______ 7. A frequency distribution of the results of all possible samples of a specified size that could be obtained from a population containing some specific parameters. __g______ 8. A sample in which every possible combination of elements in the population has an equal chance of constituting the sample.