Audit and assurance revision question on sampling and ethical threats.

Your firm has recently been appointed as the external auditor and tax adviser of Amidu hotels. Amidu hotel runs a chains of boutique hotels. Ndwanga the engagement partner, met with Amidu hotel finance director Mr Ambele, last week. During the meeting Ambele offered Ndwanga the role of financial controller once the current year audit is complete. Ambele also suggested offering all the members of the audit team a ‘free night stay’ in Amidu hotel of their choice. Ambele asked Ndwanga to organize the meeting with his auditing firm’s tax partner. Ambele needs advice on whether to challenge the local tax authority in respect of its assessment of Amidu hotel’s carried forward tax losses. Ambele wants your firm to assist with any challenge to the local tax authority.

REQUIREMENT:

  • Assess, with respect with the information provided above the ethical threats which may affect the independence of your firm in respect of audit of Amidu hotels co. Advice how each threats might be appropriately managed.
  • According to ISA 530 audit sampling the objective of the auditor, when using audit sampling, is to provide a reasonable basis to draw conclusions about the population from which the sample is selected.
  1. Define audit sampling and describe four method of sampling.
  2. Define sampling risk and explain it how it affects sample size.
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