Final answer:
An auditor's decision on sample size is affected by materiality level, desired level of assurance, and account risk. A decrease in materiality or an increase in desired assurance leads to a larger sample, whereas a decrease in assurance results in a smaller sample. High-risk accounts also require larger samples.
Step-by-step explanation:
In the context of an audit, the sample size can be influenced by several factors. First, we must understand that sampling is employed because it is not practical or cost-effective to examine every single transaction within an entity. When determining the size of the sample, auditors must consider the level of assurance they wish to obtain, the materiality of the transactions, and the assessed risk of misstatement in an account.
A decrease in the materiality level would generally result in a larger sample size because smaller transactions are more likely to be significant, and thus a greater number of transactions must be examined to obtain a satisfactory conclusion about the population.
A decrease in the desired level of assurance would tend to result in a smaller sample. This is because the auditor is willing to accept a higher risk that the conclusions drawn from the sample may not be reflective of the entire population, thus requiring fewer samples to be tested.
An assessment that the account being audited is high risk would generally lead to a larger sample size, as the auditor would want to gather more evidence to mitigate the risk of a material misstatement not being detected.
An increase in the desired level of assurance would lead to a larger sample size because the auditor seeks to reduce the risk of drawing incorrect conclusions about the population. Consequently, more items would need to be tested to reach the higher level of certainty.