AUE3702
Assignment
2 - Semester
1 OF 2022. AUE3702 - Substantive Procedures And Finalising An Audit. Comments on the size of sample selected
Considering that in prior years, no instances of empty boxes had been found,
internal controls in the receiving and issuing of inventory and physical con...
AUE3702 ECP ASSIGNMENT 2 – SEMESTER 1
OF 2022
NOTE THAT THIS ASSIGNMENT SHOULD BE
PRESENTED IN OWN WAY AS THERE IS RISK
OF PLAGIARISM, HENCE TREAT IT AS A GUIDE
TO CREATING YOUR OWN SOLUTION
1. Audit Sampling – Inventory
1.1. Comments on the size of sample selected
Considering that in prior years, no instances of empty boxes had been found,
internal controls in the receiving and issuing of inventory and physical controls
over inventory are operating effectively for the year ended 30 April 2021 and
the company has a strong control environment with the risk of material
misstatement assessed as low, the sample size can be reduced.
However, 30 out of 15 000 (0.2%) only were sampled which will increase the
sampling risk as the sample seems too low. Out of the sample of 30, one of
the boxes representing 3.33% was found to be empty and resealed very
carefully, which then increases the risk that many more boxes can be empty.
One out of thirty might seem too low but when this applies to the whole
inventory batch there is a possibility that 500 (15 000 * 3.333%) are empty.
When escalated, there is a possibility that the risk maybe material after all.
The auditor should consider the confidence level required, the higher the
confidence level, the higher the sample size and the lower the confidence
level the lower the sample size.
The tolerable misstatement also has to be taken into account. If the tolerable
misstatement is above or equal to the 3.33% error discovered in the sample,
then the auditor can place confidence in the results but if the tolerable
misstatement is below 3.33%, the sample size should be increased.
After escalating the results of the one box, it is found that the expected
misstatement from the pilot sample results is that 500 boxes will be empty.
This figure seems too large, as a result it is reasonable under the
circumstances to increase the sample size.
Downloaded by DESMOND CHIKASHA 0680137428 (collinsshumb@gmail.com)
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