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mam could you pleeeasee explain Why in the referenced ques, Option 4 isn’t correct? Isn’t stratification better to choose a more representative sample?
Your audit assistant has carried out a direct confirmation (a receivables circularisation) on trade receivables at
Lodestar. She selected the 10 largest balances, representing 85% of the sales ledger at year end, including 2 items
that were individually material. Seven customers agreed the sales ledger balance, two replied noting discrepancies
which she has followed up and one has not replied.You are analysing the sample selection with regard to the direct confirmation.
Which of the following statements in relation to the sample selection is TRUE?
1. The sample is appropriate and, at 85% of the balance, gives good assurance about the overall
balance.
2.As 15% of the ledger balance has not been sampled, the sample is inappropriate.
3.The sample selection does not address the risk of understatement as it has focused on the ten largest balances.
4. The sample should have been stratified to provide a representative sample.What the assistant has done is effectively to have stratified the population into “biggest” and “other” – from which they selected 100% of the biggest – so this is not a sample (of that sub-population) – and 0% of the other – so this is not a sample (of that sub-population).
A sample would have been representative if it had been selected randomly, using interval sampling or MUS – a population does not have to be stratified to obtain a representative sample. Rather, stratification makes the overall sample less representative because randomness is lost.
Statement 3 is obviously true.
how is it that option 1 and 2, both being the complete opposite, so if 1 were false other shouldve been true right? Why is that not the case…………….
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