Sampling Methods to Assure the Quality of Research - Essay Example

Sampling Methods: Accounting Article Review Student’s Name Institution Sampling Methods The three audit firms use non-statistical methods to establish their immediate sample sizes. It is important to note that non-statistical sampling methods in auditing means that a sampling plan has failed to address at least a single requirement of the statistical sampling framework so that it cannot allow for possibilities of measurement and control. The sampling methodology is deemed to be similar to the non-statistical sample size formula in the AICPA, Audit Sampling guides (Elder & Allen, 2003). In fact, it is noted that the assurance factor in the 1999 guide is focused on a linkage between inherent and control risk while in the 1983, the factor was solely focused on the expectations of errors in the account as well as the aspired level of assurance from the test, factors matched to both inherent and control risks. The three audit firms engage in the modification of applying the sampling formula used. For instance, the Tolerable misstatement is effectively replaced with the planning materiality in the course of computing sample sizes (Elder & Allen, 2003). In other cases, the sampling formula was modified in order to position the assurance factor as a denominator. It is stated that assurance factors utilised by these firms are deemed to be smaller in comparison to the ones that were used in the 1999 sampling guide. In determining whether or not the sample sizes had decreased over the period, the firms identifies that a significant number of environmental changes could have led to lower sample sizes in the later sampling period (Elder & Allen, 2003). The sampling methodology used for this cause relates to controlling for risk assessment levels as way of establishing whether sample sizes did in fact reduce incrementally to any possible decrease that is deemed to be related with possible changes in risk-assessment levels. In identifying whether there is a relationship between auditor risk assessments and sample sizes, the authors assess the immediate weight allowed for each posed risk model component in relation to the firms’ sampling methodology. Consequently, the sampling methodology observes the criticality of each of the mentioned component under regression analysis. Moroney, Campbell and Hamilton (2014) advocates for the non-statistical analysis in analysing sample sizes. Thus, it can be seen that the authors have also emphasised on this method and even gone ahead to establish necessary modifications to the nominal formula. Relationships between Risk and Sample Size as Reported By Elder and Allen (2003) First, it is important to note that the relation adopts a combined measure that is deemed to be consistent with a mathematical structure, which is an audit risk model emphasised by Moroney, Campbell and Hamilton (2014). The model ascertains that the risk of an error is the immediate product of both control and inherent risk. In essence, the combined risk variable for the entire sampled audit firms are positive and significant in nature, and that this model has a distinctive and similar level of power in relation to the model that is based on the separate assessments of these risks level. For the combined period models, it is established that the sample size coefficient for inherent risk is positive and also, significant in both the full and matched samples. On other hand, the control risk portrays a positive and insignificant for the entire full sample. The author notes that the immediate coefficient on inherent risk is significantly larger in comparison to the coefficient for control risks while the difference is deemed to be statistically significant (Elder & Allen, 2003). The relationship results are deemed to be similar with other past researches, which finds that audit hours are significantly related to inherent risks measurements but not with control risk, and also, with ones that finds errors to be more powerfully correlated with inherent risk as opposed to control risk. Relationship Analysis by Individual Audit Firms For firm A, it is noted that control risk has a significant relation for all samples while inherent risk shows a significant relationship for the immediate reduced sample and marginally significant for the full sample (Elder & Allen, 2003). In fact, this firm portrays a risk methodology that avails a precise connection between risks and sample sizes decisions. For firm B, the mathematical audit mode does not portray a significant relationship between samples sizes and either inherent or control risk. There was no positive relationship that could be determined between sample size decisions that are connected to risk assessments (Elder & Allen, 2003). Notwithstanding, the indicator variable for the periods postulated that Firm B had engaged in the reduction of its sample sizes in 1999 in comparison to 1994. Notwithstanding, for Firm C, the relationship between inherent risk and sample sizes is deemed to highly significant in nature but only based on its full sample (Elder & Allen, 2003). In essence, the coefficient for control risk is deemed positive but insignificant. Other Factors that Might Influence Sample Size It is noted that sample sizes are affected by such other important aspects like the immediate dollar amount of the account balances, materiality, type of test conducted as well as the time frame for the process. The author notes that sample sizes are always positively related to the account balances while negatively associated with the materiality aspect (Elder & Allen, 2003). The materiality aspect is determined in relation to the panning materiality, which is used as opposed to tolerable misstatement since some of the audit firms under the study has already adopted it on their respective auditors’ risk assessments criterion. Notably, the sample sizes are affected by inventory test counts. In fact, most audit firms will tend to choose larger sample sizes for test counts since it poses a challenge to go back and re-conduct other additional tests. Considering the fact that inventory tests are conducted to substantial levels of sample sizes, they are more sensitive to aspects related to risks. Conversely, these tests are mostly determined on a judgmental basis since it is a challenge to specify the immediate dollar amount of the underlying population as well as the relative amounts tested (Elder & Allen, 2003). The decision to use judgment as opposed to a distinctive formula in determining the inventory tests might go a long way to decrease the level of risk between risk and sample sizes at hand. Given the fact that sample size decisions will most likely depend on a partial manner the audit test, it is also possible to distinctively separate sample sizes regression models by their respective type of tests; which might include inventory test counts and accounts receivables conformation tests. Conclusion about Practice and Best Practice The study has been successful in examining the possible underlying alterations in the auditors’ risk assessment and sample size decisions. It is established that firms risk assessments will always showcase a lower risk assessments for both control and inherent risks in comparison to past researches. It is also established that risk assessments and sample sizes reduced in the period between 1994 and 1999 (Elder & Allen, 2003). Evidence indicates that the reduction in the sizes is attributed to competition pressures within the entire audit industry. In consistence with the underlying mathematical audit risk model, it is ascertained that sample sizes are attributed to measurements of both inherent and control risks. Further evaluation postulates that the relationship between sample sizes and risk assessments was inconsistent across all firms and time frames for audit work. The changes in the sample size are also related to the fact that the firm’s auditors had opted to decrease risk assessments as well as sample sizes between the two periods. This is especially true for the firms enjoyed larger sample sizes in the earlier course of the process. The reduction is also attributed to the improved level of competition however; there are other factors that are deemed to be influencing auditor’s sample size decisions. Numerous researches have indicated that auditors in most occasions fail to rely on controls and thus, they go ahead to assess control risk at their maximum levels (Elder & Allen, 2003). Besides, inherent risks is assessed at its medium or maximum level while most auditing firms relied greatly on controls and went ahead to assess inherent risks that was positioned at a lower level below the maximum on most of their respective audits. It is fair that auditing personnel and firms engage in a consistent model of risk assessment in order to provide an effective and efficient platform needed for future comparison processess. The notion of over relying on a single risk measurement framework is deemed to be a fundamental phenomenon in bringing about effective future results (Elder & Allen, 2003). An effective audit practice will always override a mere audit practice in the sense that best practice will require the auditing firm or personnel engage in extra risk analysis to establish the immediate level of effects brought forth by end results (Elder & Allen, 2003). Best practice is reliable and consistent with such notable frameworks as the Panel of Audit Effectiveness as well as the AICPA. It is important that auditing researchers engages a well-comprehensive and inclusive sample size that is sufficient enough for bringing about the strengthening of the immediate relationship between risk and sample sizes. Best practice will not allow auditors to engage in the reduction of sample sizes as financial year’s progresses. They should be conversant with the immediate factors or rather variables that affect sample size decisions and devise legitimate ways of influencing these factors to bring about effective results. Best practice calls for adopting any possible changes that emanates within the auditing industry in regards to the underlying alterations of executing risk assessment tasks. References Elder, R. & Allen, R. (2003) ‘A longitudinal field investigation of auditor risk assessments and sample size decisions’ The Accounting Review 78(4), 983-1002. Moroney, R, Campbell, FM, & Hamilton, J M, (2014). Auditing : a practical approach ([Second edition]). Milton, Qld John Wiley and Sons Australia Read More