Reference no: EM132741380

EVALUATING SAMPLE RESULTS

You are the audit team leader for the audit of Sumita Jewellers Limited, a jewelry retail company that has four branches in Fiji. For the confirmation of account receivable balance as at 31 December, 2018, a debtors' circularisation was performed on 18" February, 2019. For the purpose of sample selection, the Assistant stratified the debtor's population into 3 strata as shown below: Stratum No. Stratum Details (S) No. of Debtors Amount ($) 30,000 and over 10 1,750,000 5000 - 29.999 100 4,900,000 Less than 5,000 130 1,550,000 The stratification was based on the dollar value of debtors and was consistent with the audit firm's normal approach. In performing the circularisation, the Assistant selected 60% of the debtors from stratum 1, and a systematic selection approach was used for strata 2 where 20% of the debtors were selected. Given the fact that in stratum 3, the amounts were less than $5,000, a haphazard sample of 7 debtors was selected. No errors were found in stratum 1 and 3 whereas 12 debtors balances were overstated in stratum 2 by $400,000. The errors were lower than the materiality level; therefore, the audit assistant concluded that no further work needed to be performed.

Required:

Problem 1: Critically evaluate the Assistant's sample selection and evaluation of results. Discuss each stratum separately. (Hint: your answers should refer to ISA 530 with reference to the selection of specific items).