CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceEasy
An auditor is testing the valuation of accounts receivable for a manufacturing client. The client has 5,000 active customer accounts. The auditor decides to use non-statistical sampling and selects a sample of 50 accounts for confirmation and subsequent review of collectibility. Which of the following is a limitation of this approach compared to statistical sampling?
- AThe auditor cannot quantify sampling risk, making it difficult to project the sample results to the population.
- BIt is more time-consuming to select a truly representative sample without statistical methods.
- CNon-statistical sampling is inherently more biased and requires a larger sample size to achieve the same level of assurance.
- DThe selection of sample items is purely random, which may not adequately cover high-risk accounts.
Show answer & explanationAnswer & explanation
Correct answer: A. The auditor cannot quantify sampling risk, making it difficult to project the sample results to the population.
Non-statistical sampling relies on the auditor's judgment, which means sampling risk cannot be objectively measured or quantified. This makes it challenging to project sample results to the entire population with a statistically determined level of precision.
Why the other options are wrong
- B. Non-statistical sampling can often be less time-consuming in the selection phase as it doesn't require complex computations or random number generation.
- C. Non-statistical sampling is not inherently more biased if performed properly, and it doesn't necessarily require a larger sample size; it just lacks the statistical measurement of risk.
- D. Non-statistical sampling allows for judgmental selection, meaning the auditor can target high-risk accounts, unlike purely random selection.
Non-Statistical Sampling Limitation
Non-statistical sampling, while relying on auditor judgment, does not allow for the quantification of sampling risk or the objective projection of sample results to the population.
- Auditor judgment is used for sample size and selection.
- Sampling risk cannot be quantified.
- Results are extrapolated judgmentally, not statistically.
Memory trick: Non-Stat means you can't Measure the Margin.