SA 530 – Audit Sampling

Question 1

C Ltd appoints C & M as statutory auditors for the FY 2021-2022. C & M seem to have different opinions on Audit approach to be adopted for audit of C Ltd.

M is of the opinion that 100% checking is not required and they can rely on Audit Sampling techniques in order to provide them a reasonable basis on which they can draw conclusions about the entire population.

C is concerned that whether the use of audit sampling has provided a reasonable basis for conclusions about the population that has been tested.

You are required to guide C about his role if audit sampling has not provided a reasonable basis for conclusions about the population that has been tested in accordance with SA 530.

Answer 1

As per SA 530, “Audit Sampling”, the auditor shall evaluate:

(a) The results of the sample; and

(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 NTE 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.

Question 2

SN - Haphazard Sampling.

Answer 2

Haphazard Sampling:

–> In haphazard selection, the auditor selects the sample without following a structured technique.

–> Although no structured technique is used, the auditor would nonetheless avoid any conscious bias or predictability for example, avoiding difficult to locate items, or always choosing or avoiding the first or last entries on a page and thus attempt to ensure that all items in the population have a chance of selection.

–> Haphazard selection is not appropriate when using statistical sampling.

–> Haphazard selection of sample, may be an acceptable alternative to random selection of sample, provided the auditor attempts to draw a representative sample from the entire population with no intention to either include or exclude specific units.

–> When the auditor uses this method, care needs to be taken to guard against making a selection that is biased, for example, towards items which are easily located, as they may not be representative.

Question 3

What is tolerable misstatement and tolerable rate of deviation?

Answer 3

Tolerable Misstatement & Tolerable Rate of Deviation: SA 530 Audit Sampling define
tolerable misstatement and tolerable rate of deviation.
Tolerable misstatement: A monetary amount set by the auditor in respect of which the
auditor seeks to obtain an appropriate level of assurance that the monetary amount set
by the auditor is not exceeded by the actual misstatement in the population.
When designing a sample, the auditor determines tolerable misstatement in order to
address the risk that the aggregate of individually immaterial misstatements may cause
the financial statements to be materially misstated and provide a margin for possible
undetected misstatements.

Tolerable rate of deviation: It is a rate of deviation from prescribed internal control
procedures set by the auditor in respect of which the auditor seeks to obtain an
appropriate level of assurance that the rate of deviation set by the auditor is not
exceeded by the actual rate of deviation in the population.