You Have Recently Been Hired as an Audit Trainee with an Internal

question 50

Essay

You have recently been hired as an audit trainee with an internal audit department.Your first assignment will be to select the sample for a test of new capital assets acquired over the last two years.Your review of the internal audit files indicates that the last time this work was done the sample to be tested was selected on a judgmental nonstatistical basis.Based on your university/college auditing course,you believe the work offers good potential for the use of statistical sampling techniques.You know that you will have to be able to explain and justify your opinion to the internal audit manager.
Required:
Both statistical sampling and nonstatistical or judgmental sampling have advantages and disadvantages.Briefly state two advantages and two disadvantages of statistical sampling and one advantage and one disadvantage of nonstatistical sampling.

Formulate null and alternative hypotheses for different types of tests.

Compute test statistics for hypothesis testing.

Set up and interpret rejection regions in hypothesis testing.

Understand and compute confidence intervals and their relation to hypothesis tests.

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