ISA 530 - Audit Sampling

Question 1

ISA 530: Audit Sampling:

Answer 1

> Process of applying Audit Procedures.
Process of applying Audit Procedures.
Audit Sampling is:
*Not Suitable for:
- Related Party transactions.
- BRS.

> However, Audit Sampling is Suitable for:
*Recurring transactions.

Question 2

ISA 530: Audit Sampling Approaches:

Answer 2

1. Statistical - (You are going to use: Scientific Techniques, use mathematical calculations.
   It is the appropriate Method.
   The disadvantage is, it is a complex approach.
2. Non-Statistical (No calculations are used but purely, Professional Judgement of the Auditor is used)
   That is what will help the Auditor to choose his Sampling.
   It is very simple to operate.
   Its disadvantage is, it is to the biasness of the Auditor.

Question 3

ISA 530: Sampling Risk

Answer 3

> The Risk of drawing wrong conclusions on population.

Risk:
1. Sampling,

2. Test of Controls
   * Underreliance
   * Overreliance.
3. Test of details:
   * Incorrect acceptance
   * Incorrect rejection.

Question 4

ISA 530: Non Sampling Risk

Answer 4

> Wrong opinion is drawn by Auditor on population.
But not by choosing Wrong sample. ( it could be because of other reasons like using a Wrong Analytical Procedure.)

Question 5

ISA 530: Tolerable Error and Ecpected error:

Answer 5

Expected error:
> Error which Auditor expected based on prior experience.

Tolerable error:
> Error which Auditor expects.
> Maximum Level error Auditor is ready to accept.
> Rate of deviation.

Performance Materiality:
> Materiality Level fixed for individual class of transactions.

Question 6

ISA 530: Sample Selection Methods:

Answer 6

Methods of Sampling:
1. Random Sampling:
* Stratified
* Simple

2. Systematic Sampling:
   * Fixed regular Sampling.
3. Monetary Unit:
   * Classifying based on Monetary values.
4. Haphazard:
   * No Structured technique.
5. Block / Cluster selection:
   * Based on clusters.

Question 7

ISA 530: Audit Procedures on samples:

Answer 7

> If Not applicable.
Replace the sample.

> If Data was lost
Use alternative Audit Procedure.

Projection of data on population:
> Anomaly: Not a true representative of the population.
* Not considered for projecting Misstatements on population.
> What is the Tolerable error?
* If it crosses the limit,
* Then it has impact on FS.
* If it Does Not cross the limit,
* Then it will have no impact on the FS.

Question 8

ISA 530: Reasonable Assurance:

Answer 8

> Suppose the Auditor is concluding that Sampling is not giving him the reasonable Assurance that he requires, then whatever Misstatements that he might have come across, he informs management, asking them to make necessary adjustments and if there will any chance that such mistakes will be repeated.
The Auditor can also Increase N, T, E of further Audit Procedure.

Other Important matters to consider are:
1. Sample Size:
> Should be appropriate while selecting.
> To reduce Sampling Risk to an acceptable level.
> While designing Auditor should:
* Consider the appropriate characteristics of the population from which the Sample will be drawn.