1) Explain the advantages and disadvantages of using nonstatistical sampling when testing the existence of accounts receivable

Answer:

1. The major advantages of nonstatistical sampling include:

• Decreased complexity,
• Lower training cost, and
• It may be less time consuming.

The major disadvantages of nonstatistical sampling include the facts that the auditor:

• Cannot quantify sampling risk,
• Cannot measure the sufficiency of evidence, and
• May not get the most efficient sample.

When auditing accounts receivable it may be simpler and less complex to select the sample and evaluate sample results. However, the auditor must use professional judgment, rather than statistics in evaluating sampling risk and the sufficiency of evidence.

2. When the auditor plans to use ratio or difference estimation, the auditor should expect differences between audit and book values. Hence, a common condition for using ratio or difference estimation is that a minimum number of differences must exist between book values and audited values in the sample.