Page 111 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
(CNO-SA510.060) Audit Conclusion & Reporting
No Sufficient Appropriate Audit Evidence: If sufficient appropriate audit evidence regarding opening
balances is not obtained, the auditor shall express a qualified or disclaimer of opinion as per SA 705.
Material Misstatement: If a material misstatement in opening balances affects the current period's financial
statements and is not properly accounted for or disclosed, the auditor shall express a qualified or adverse
opinion in accordance with SA 705.
Accounting Policies Consistency: If current period's accounting policies relating to opening balances are not
consistently applied or a change in policies is not properly accounted for or disclosed, the auditor shall express
a qualified or adverse opinion as per SA 705.
Predecessor Auditor's Report Modification: If the predecessor auditor's opinion on prior period's financial
statements included a relevant and material modification, the current auditor shall modify the opinion on the
current period's financial statements as per SA 705(Revised) and SA 710.

SA 530

AUDIT SAMPLING

(CNO-SA530.020) Sampling Risk & Non-Sampling Risk
Sampling Risk
Sampling Risk: Auditor's conclusion may be different if entire population was subject to same audit
procedure. Leading to 2 types of Erroneous Conclusions

Type- I Error: (All good)
• Over Reliance on Controls- In case of Test of controls, controls are more effective than they actually are.
• Incorrect Acceptance- In case of Test of Details, material misstatements does not exist, when infact they are.
• Reduces Effectiveness of Audit- Audit is more concerned about this error because it affects audit
effectiveness & it will lead to an inappropriate audit opinion.

Type- II Error: (All bad)
• Under Reliance on Controls- In case of Test of controls, controls are ineffective but in reality they are
effective,
• Incorrect Rejection- In case of Test of Details, material misstatements exist, when infact it doe not.
• Reduces Efficiency of Audit- It affects audit efficiency as it would lead to additional work to establish that
initial conclusions were incorrect.
Non-Sampling Risk
1. Definition: The risk that the auditor reaches an erroneous conclusion for reasons not related to sampling
risk, such as inappropriate audit procedures, misinterpretation of evidence, or failure to recognize a
misstatement or deviation.

2A. Inappropriate Audit Procedure: Checking only the cost of fixed assets by tracing bills & agreements
without considering depreciation, revaluation, AS compliance, or physical verification.
2B. Failure to Recognize Misstatement: An example is the failure to identify unauthorized discounts given to
customers at the time of recovery of credit sales, as the details were on printed documents.
2C. Misinterpretation of Audit Evidence: An auditor might note that sales have increased by 20% compared
to the previous year and take it as a positive sign. However, they may misinterpret or overlook the fact that the
industry average has increased by 40% due to favourable market conditions.

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