Advantages and Disadvantages of Using Sampling during Auditing Investigations (Essay Sample)

Advantages and Disadvantages of Using Sampling during Auditing Investigations
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Advantages and Disadvantages of Using Sampling during Auditing Investigations
Introduction
Audit sampling is the systematic process of choosing particular transactions for analysis during the course of an audit to come to wider conclusions and make inferences on whether an account balance is materially misstated or the internal controls of a company over financial reporting is working meritoriously and at peak efficiency. It is crucial that clients and auditors understand that sampling in an auditing investigation has benefits and shortcomings. This paper presents some of the disadvantages and advantages associated with the use of sampling when conducting an investigation.
Advantages
The advantages of sampling include Statistics based conclusions, Audit efficiency and lower auditing costs, and less inspectionCITATION Kan13 \p 296 \l 1033 (Kan, 2013, p. 296).
Sampling results to statistics based conclusions. It allows for inferences to be made with regards to account balances and transactions using statistical inference techniques such as confidence interval and hypothesis testing. Secondly, sampling promotes audit efficiency. Sampling in auditing allows for audit efficiencies in terms of inferences made, cost and time. It saves time, money and effort in forensic accounting investigation while at the same time enables investigators to find what they need. If the sample data shows irregularities that appear suspicious, the auditor can expand the scope of the investigation. Thirdly, sampling during investigation allows auditors to reach conclusions about large data sets without analyzing each transaction individually. Therefore, it allows for less inspection and in extent saves time.
Disadvantages
The major disadvantage of using sampling when conducting an investigation is that it may result to extrapolated misstatements CITATION Jon99 \p 24 \l 1033 (Jones, 1999, p. 24). When errors are found in accounting records, the standards of auditing state that the errors must be extrapolated and generalized to the remaining accounting records in the event that the misstatements cannot be sequestered or isolated. With the use of sampling, there is no mathematical basis for generalization and superfluous audit investigation may need to be further performed.
Secondly, conducting an analysis on a sample could fail to spot possible incriminating data. The chosen sample transactions could give the impression of an exemplar example of apposite accounting systems although other transactions left out of the sampled records could reflect fraud or malfeasance. Similarly, the investigators could observe a few points in the sampled data that gives the impression of incriminating entries and inferring an entrenched level of fraud from the few unearthed data points when...