Page 136 - CA Inter Audit PARAM

CA Ravi Taori
Answer ➢ Audit Sampling:
• As per SA 530 on “Audit Sampling”, the meaning of the term Audit Sampling is – the
application of audit procedures to less than 100% of items within a population of audit
relevance such that all sampling units have a chance of selection in order to provide the
auditor with a reasonable basis on which to draw conclusions about the entire population.
• The requirements relating to sample design, sample size and selection of items for testing
are explained below-
• Sample design - When designing an audit sample, the auditor shall consider the
purpose of the audit procedure and the characteristics of the population from which
the sample will be drawn.
• Sample Size- The auditor shall determine a sample size sufficient to reduce sampling
risk to an acceptably low level.
• Selection of Items for Testing- The auditor shall select items for the sample in such
a way that each sampling unit in the population has a chance of selection.

QNO Factor effecting Sample size Old Course -- (M18M/ N18M/ M19M/ M20M)
530.05 Bhaskar CNO- SA530.120
The level of sampling risk that the auditor is willing to accept affects the sample size required. The lower
the risk the auditor is willing to accept, the greater the sample size will need to be. Explain Stating the
examples of factors that the auditor may consider when determining the sample size for tests of controls.
OR
The sample size can be determined by the application of a statistically-based formula or through the
exercise of professional judgment. When circumstances are similar, the effect on sample size of factors will
be similar regardless of whether a statistical or non-statistical approach is chosen.
Explain stating the examples of factors (any four) that the auditor may consider when determining the
sample size for tests of controls.
Answer ➢ The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low
level.
➢ The level of sampling risk that the auditor is willing to accept affects the sample size required. The
lower the risk the auditor is willing to accept, the greater the sample size will need to be.
➢ The sample size can be determined by the application of a statistically based formula or through the
exercise of professional judgment.
Story Situation Impact on Sample Size
Auditor sent to An increase in the The higher the auditor’s assessment of the risk of
Construction company auditor’s assessment material misstatement, the larger the sample size
for checking WAGES of the risk of material needs to be. The auditor’s assessment of the risk of
(High Inherent Risk) & Misstatement material misstatement is affected by inherent risk and
preliminary control risk.
assessment shows no
guidance or training
for payment staff
(High Control Risk).
So, resulting RMM is
High.
He gets call from Decrease in the use The less the auditor is relying on other substantive
colleague that he will of other substantive procedures (tests of details or substantive the same
not be coming so no procedures directed assertion analytical procedures) to reduce to an
analytical procedures at the same acceptable level the detection risk regarding a
and now things will be assertion. particular population, the more assurance the auditor
depending on his will require from sampling and, therefore, the larger
checking only. the sample size can be.
Last year file shows An increase in the The greater the amount of misstatement the auditor
many misstatements. amount of expects to find in the population, the larger the sample
Out of 3 supervisors 1 misstatement the size needs to be in order to make a reasonable estimate
is on leave & 1 is ill for auditor expects to of the actual amount of misstatement in the
past 9 months. find in the population
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