Sydney Siebenthaler, the audit manager for Jennifer’s Running Shirts Inc., has just returned from a continuing education class on audit sampling and now wants to use discovery sampling or sequential sampling on the Jennifer’s audit because the class instructor said that the sample sizes would be significantly smaller. “Talk about a no- brainer!” Siebenthaler exulted.
Jennifer’s has good controls, and the audit team has performed tests of controls over the payroll procedures in previous years to reduce substantive tests of payroll accounts to only analytical procedures. In the previous year, the audit team used the following parameters: risk of overreliance, 10 percent; expected population deviation rate, 2 percent; and tolerable rate of deviation, 10 percent, which resulted in a sample size of 38. The auditors increased (rounded) the sample size to 40 items, and one deviation was found. The resulting upper limit deviation rate was 9.4 percent, and the control was accepted as operating effectively.

Required:
a. Define discovery sampling.
b. Do you agree that discovery sampling should be used on the audit of Jennifer’s?
c. How would discovery sampling be used? d. Define sequential sampling.
e. Do you agree that sequential sampling should be used on the audit of Jennifer’s?
f. How would sequential sampling be used?