Sampling SA 530

Please elaborate more

Tolerable rate of deviation / tolerable misstatement is the risk that you are taking while taking the sample. It is inversely proportionate to the sample size. Let say your tolerable rate of deviation is 10% which means if the errors / deviations from the expected is 10% you would consider it to be good and proceed further. Your sample size in this case is lets say 100. Now this scenario is possible if your internal control is good and you perceive this area to be low risk area. If your tolerance is 2%, it means the risk area may be high and internal controls may not be effective, so your sample size increases. Hope I am able to clarify

Yes I am able to get it but one more doubt has arised in my mind which is:
whether the tolerable rate of deviation is the deviation of operating effectives of internal control from its design which the auditor has assumed using his judgement, which during the course of his audit proved to be otherwise. So earlier(planning stage) he could tolerate 10% but during the audit he realised that he can not tolerate beyond 2% because of which he had to increase the sample size...

For the design testing, which is generally the go-through of the process, you have to pick one or two transactions. The design gap can be observed during the discussion and observing the SOP / flowchart. It will give you an idea of the risk of that area. The risk can also be identified from the Understanding of the business (planning stage). Now when you take sample for testing the operating effectiveness, you have to define the tolerance limit. Planning is continuous process, the tolerance limit may keep changing based on your understanding during the audit.

The smaller the tolerable misstatement or rate of deviation, the greater the required sample size., so it is working vice versa.

Thank you so much. really appreciate your responses

:) welcome. Hope you will be able to apply the concept in your audit assignments