Page 134 - CA Final PARAM Digital Book.

QNO Sampling Risk New Course – (SM23)
74.500 TITANIUM CNO--SA530.020
CA. Ritesh Deshpande has drawn some samples during the course of audit of a manufacturing company
for testing controls as well as for tests of details. On the basis of the samples selected, he reaches an
erroneous conclusion that access controls on applications are less effective.

Further, on the basis of samples selected, he concludes erroneously that work-in progress inventories
amounting to ₹ 5 crore in financial statements are materially misstated.

Outlining the above risk involved, discuss how it is going to affect his audit of the company.
Answer The described risk is sampling risk. It is a risk that the auditor’s conclusion based on a sample may be different
from the conclusion if the entire population were subjected to the same audit procedure.

In the given case, the auditor has arrived at erroneous conclusions on the basis of the samples selected. In
the case of a test of controls, he has concluded that access controls are less effective than they actually are.
In the case of a test of details, he has concluded erroneously that a material misstatement exists when in
fact, it does not. This type of erroneous conclusion affects audit efficiency as it would usually lead to
additional work to establish that initial conclusions were incorrect.

QNO Evaluation of Nature & Cause of Misstatement / Deviation Old Course – (N09R, PM17)
78.000 TITANIUM CNO--SA530.160
“An auditor while analysing the errors in a sample need not consider the qualitative aspects of errors

detected” Please comment.
Answer Part I -- Relevant Standards & Laws
▪ SA 530, Audit Sampling

Part II -- Requirements of Relevant Standards & Laws
➢ Qualitative Aspects: - So auditor should go beyond detecting misstatement and deviations
and consider qualitative aspects
Accordingly, the auditor cannot be satisfied by detecting errors only but also would need to
consider the qualitative aspects of such errors.

➢ Nature & Cause: - Investigate deviations or misstatements and evaluate their possible
effect on the purpose of audit procedure and on to other areas of audit
The auditor shall investigate the nature and cause of any deviations or misstatements identified and
evaluates their possible effect on the purpose of the audit procedure and on other areas of the
audit.

➢ Common Features: - Type of Transactions, Location, Product, Period of time / In such case
auditor may identify all items in population with common feature and extend audit procedures

➢ Anomaly: - Extremely rare circumstances misstatement or deviation can be anomaly /
auditor should obtain high degree of certainty that it is not representative of population /
perform additional procedures for the same
In the extremely rare circumstances when the auditor considers a misstatement or deviation
discovered in a sample to be an anomaly, the auditor shall obtain a high degree of certainty that
such misstatement or deviation is not representative of the population. The auditor shall obtain
this degree of certainty by performing additional audit procedures to obtain sufficient appropriate
audit evidence that the misstatement or deviation does not affect the remainder of the population

➢ Intentional: - If these are intentional then there is possibility of fraud
In analysing the deviations and misstatements identified, the auditor may observe that many have
a common feature, for example, type of transaction (Counter Sales), location (Mumbai Branch),
product line (Old product) or period of time (Peak Season). In such circumstances, the auditor may
decide to identify all items in the population that possess the common feature and extend audit
procedures to those items. In addition, such deviations or misstatements may be intentional, and
may indicate the possibility of fraud.

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