AUE3702 Assignment 2 - Semester 1

AUE3702 Assignment 2 - Semester 1 AUE3702 ECP ASSIGNMENT 2 SEMESTER 1 1. Audit Sampling – Inventory 1.1. Comments on the size of sample selected Considering that in prior years, no instances of empty boxes had been found, internal controls in the receiving and issuing of inventory and physical controls over inventory are operating effectively for the year ended 30 April 2021 and the company has a strong control environment with the risk of material misstatement assessed as low, the sample size can be reduced. However, 30 out of 15 000 (0.2%) only were sampled which will increase the sampling risk as the sample seems too low. Out of the sample of 30, one of the boxes representing 3.33% was found to be empty and resealed very carefully, which then increases the risk that many more boxes can be empty. One out of thirty might seem too low but when this applies to the whole inventory batch there is a possibility that 500 (15 000 * 3.333%) are empty. When escalated, there is a possibility that the risk maybe material after all. The auditor should consider the confidence level required, the higher the confidence level, the higher the sample size and the lower the confidence level the lower the sample size. The tolerable misstatement also has to be taken into account. If the tolerable misstatement is above or equal to the 3.33% error discovered in the sample, then the auditor can place confidence in the results but if the tolerable misstatement is below 3.33%, the sample size should be increased. After escalating the results of the one box