1. Learning Objectives LO1 Explain the role of professional judgment in audit sampling decisions. LO2 Distinguish audit sampling work from nonsampling work. LO3 Compare and contrast statistical and nonstatistical sampling. LO4 Differentiate between beta risk, alpha risk, sampling and nonsampling risk. 1

2. Sampling and Non-Sampling Risk Sampling risk:  The probability that an auditor’s conclusion based on a sample might be different from the conclusion based on an audit of the entire population.  Alpha risk is the risk that the auditor will conclude the population is worse than it really is.  Beta risk is the risk that the auditor will conclude the population is better than it really is. LO4 2

3. Sampling and Non-Sampling Risk Auditors are primarily concerned with Beta risk (risk of incorrect acceptance).  Both types of risk can be controlled by auditing sufficiently large samples. LO4 3

4. Sampling and Non-Sampling Risk Non-sampling risk:  All risk other than sampling risk.  Controlled by policies and procedures. LO4 4

5. Non-Sampling and Sampling Risk An incorrect assessment by the auditor can occur because he/she:  made an improper assessment of inherent and/or control risk, or failed to apply audit procedures carefully (non-sampling risk), or  made error projections, based on the sample results, that led to the wrong conclusion about the population (sampling risk). LO4 5

6. Sampling Methods and Applications Auditors design audit samples to deal with:  auditing control for the purpose of assessing control risk, and  auditing account balances for the purpose of getting direct evidence about financial statement assertions. LO4 6