Sampling is used in both tests of controls and substantive testing.
- Nonstatistical samples are based exclusively on auditor's judgment
- Statistical samples involve mathematics and probabilities
Audit risk is affected by sampling risk.
- Sample for performance of tests may not be representative of population
- Conclusions drawn may not be same as if sample was representative
Sampling Risk and Tests of Control
When sample not representative in a test of control, 2 possible errors
Risk of Assessing Risk Too High (Underreliance)—Auditor will conclude that control is not effective when it actually is
- Auditor will inappropriately assess level of control risk at maximum and perform more substantive testing than necessary
- Resulting audit will be inefficient
Risk of Assessing Risk Too Low (Overreliance)—Auditor will conclude that control is effective when it actually is not
- Auditor will inappropriately assess level of control risk below the maximum and perform less substantive testing than necessary
- Resulting audit may be ineffective and auditor may issue inappropriate report
Sampling errors in tests of controls
|TRUE OPERATING EFFECTIVENESS OF THE CONTROLS|
|The test of controls sample indicates:||Adequate for planned assessed level of control risk||Inadequate for planned assessed level of control risk|
|Extent of operating effectiveness is adequate||Correct Decision||Incorrect Decision (risk of assessing control risk too low)|
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