Question

Which of the following activities is the best example of the use of audit sampling?

1) Performing a transaction walkthrough.
2) Examining ten percent of the accounts receivable accounts to estimate the dollar amount of misstatement in all accounts receivable.
3) Examining authorization signatures on all purchase orders prepared during the period under audit to determine whether a material weakness exists in this control.
4) All of these are equally good examples of audit sampling.

Answer 1

Option 2 (Examining ten percent of the accounts receivable) is the best example of audit sampling among the given options, as it directly applies audit procedures to a percentage of a population to infer characteristics of the whole. Options a and b represent non-probability and systematic sampling respectively.

Step-by-step explanation:

Among the given options, the best example of the use of audit sampling is option 2: Examining ten percent of the accounts receivable accounts to estimate the dollar amount of misstatement in all accounts receivable. Audit sampling involves the application of audit procedures to less than 100% of items within an account balance or class of transactions to evaluate some characteristic of the balance or class. This method is used to draw conclusions about the entire population based on a subset of that population.

Addressing the specific examples provided:

• a. Non-probability sampling: The woman in the airport is using judgment to select participants, which constitutes a non-probability sampling method called convenience sampling. She is selecting individuals who are easily accessible and willing to participate in the survey.
• b. Systematic sampling: The teacher uses systematic sampling by selecting every student in rows two and five. While it is a form of random selection, once the initial row is chosen, all subsequent samples follow a predefined system or pattern.