Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

During the course of audit, M/s Guess and Guess Associates, an audit firm, has checked 20 percent of the postings from Cashbook to General Ledger. Some serious questions could be raised about the representative nature of the sample and about the validity of sample results. What could those serious concerns be?
Answers:
Some of the serious concerns about the representative nature of the sample and about the validity of sample results could be:

i) Why select, say 20 percent of the posting? Why can it not be 15 or 25 percent? Why check only 2 months?

ii) Can we just state the percentage size of the sample without reference to the total number of transactions? Are we taking the same amount of risk if we check 2 out of a total of 10 transactions or 200 out of 2000 transactions?

iii) How can we draw conclusions about the transactions of the whole year merely checking the transactions of a few specified months, especially as the level of activity may vary from month to month?

iv) By not stating the manner in which the 20 percent of the transactions have to be selected, would not the audit assistants consciously or unconsciously select only those transactions, which are simpler and easier to audit?



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