Page 145 - CA Inter Audit PARAM

CA Ravi Taori
(b) Whether the use of audit sampling has provided a reasonable basis for conclusions about the
population that has been tested.

If the auditor concludes that audit sampling has not provided a reasonable basis for conclusions about the
population that has been tested, the auditor may:

(I) Request management to investigate misstatements that have been identified and the potential
for further misstatements and to make any necessary adjustments; or

(II) Tailor the nature, timing and extent of those further audit procedures to best achieve the
required assurance. For example, in the case of tests of controls, the auditor might extend the
sample size, test an alternative control or modify related substantive procedures.

QNO Stratified sampling and Value weighted Sampling Old Course -- (N19M/N21R)
530.19 Bhaskar CNO- SA530.300
XYZ Ltd is engaged in trading of electronic goods and having huge accounts receivables. For analysing the
whole accounts receivables, auditor wanted to use sampling technique. In considering the characteristics of
the population from which the sample will be drawn, the auditor determines that stratification or value-
weighted selection technique is appropriate. SA 530 provides guidance to the auditor on the use of
stratification and value - weighted sampling techniques. Advise the auditor in accordance with SA 530.
Answer ➢ Stratification and Value-Weighted Selection:
Depends on population

In considering the characteristics of the population from which the sample will be drawn, the
auditor may determine that stratification or value-weighted selection technique is appropriate.
SA 530 provides guidance to the auditor on the use of stratification and value-weighted sampling
techniques.

• Stratification:
• Improves Efficiency
Audit efficiency may be improved if the auditor stratifies a population by dividing
it into discrete sub-populations which have an identifying characteristic. The
objective of stratification is to reduce the variability of items within each stratum
and therefore allow sample size to be reduced without increasing sampling risk.

Examples
• When performing tests of details, the population is often stratified by monetary
value. This allows greater audit effort to be directed to the larger value items, as
these items may contain the greatest potential misstatement in terms of
overstatement. Similarly, a population may be stratified according to a particular
characteristic that indicates a higher risk of misstatement, for example, when
testing the allowance for doubtful accounts in the valuation of accounts
receivable, balances may be stratified by age.

• Computation
The results of audit procedures applied to a sample of items within a stratum can
only be projected to the items that make up that stratum. To draw a conclusion
on the entire population, the auditor will need to consider the risk of material
misstatement in relation to whatever other strata make up the entire population.
o For example, 20% of the items in a population may make up 90% of the
value of an account balance. The auditor may decide to examine a sample
of these items. The auditor evaluates the results of this sample and
reaches a conclusion on the 90% of value separately from the remaining
10% (on which a further sample or other means of gathering audit
evidence will be used, or which may be considered immaterial).

• Projections
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