Auditors cannot normally examine all the information available to them as it would be impracticable to do so and using audit sampling will produce…

Sample Selections Methods: (i) Stratified Sampling method involves dividing the whole population to be tested in a few separate groups called strata and taking a sample from each of them. Each stratum is treated as if it was a separate population and proportionate of items are selected from each of these stratum. The number of groups into which the whole population has to be divided is determined on the basis of auditor judgment. In the given case, Auditor divided the trade receivables in three groups i.e. balances above 20lakhs, balances between 10lakhs to 20 lakhs and balances below 10lakhs and he selected different percentages of items from each group will be considered as Stratified Sampling. (ii) Block Sampling: This method involves selection of a block(s) of contiguous items from within the population. Usually, a range of continuous transaction shall have similar characteristics, therefore, selection of a group at one time will not give a reasonable basis for opinion on the overall population as different types of transactions and unusual transactions may not be covered in the group taken all at once. In the given case, the auditor uses the sample of 50 consecutive cheques to test whether the cheques are signed by authorized signatories, rather than picking 50 single cheques throughout the year is Block Selection Method.