Explain the Concept of Audit Sampling and types of Sampling Risk
- Case StudySituation
You are an audit manager for Alder Auditing Bureau, a firm that has recently gained two newaudit clients of a similar size.Your audit staff have completed their preliminary investigations of the two clients. Youare reviewing their notes which can be summarized as follows:
Client 1 –Feyaty-Al-Madinah
Feyaty-Al-Madinah is an old-fashioned family company which has been in business for overa thirty years and trades as wholesalers of fruit and vegetables. Its management structure is divided into five layers ranging from supervisor, deputymanager, manager, senior manager and director. The senior managers and directorshave been with the company for many years.Each level of management has clear authority limits set down in the company manual,which also sets out detailed written procedures for every job.Management at all levels generally has an unforgiving attitude to errors andinefficiencies.Most of the systems are paper-based, although the accounting ledgers are maintainedon a computer and there are rigid systems of authorisation before transactions can be processed. Staff turnover in clerical posts and at supervisor and deputy manager level is high.
Client 2 – Alkhalij Agency For Advertising
Alkhalij Agency for Advertising is a new company set up six months ago. It trades as a website designbusiness and as an advertising agency.Alkhalij Agency for Advertising is run by two brothers who manage the business jointly.Alkhalij Agency for Advertising mostly employs creative people but it does have a small clerical staff todeal with billing and time recording.The approach to work is casual, spontaneous and rather uncontrolled.Error detection is not seen as a priority. The management’s view is that they will dealwith errors and problems when they arise.Staff are happy and so staff turnover is low.
Required:in your review of the control environment for each of these clients, what conclusionswould you draw about the risk of error arising in the accounts?(3Mark)
Explain the Concept of Audit Sampling and types of Sampling Risk.(1 Mark)
What are the transactions and documents processed through the revenue process? (1 Mark)
Answer preview to explain the Concept of Audit Sampling and types of Sampling Risk
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