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Sampling SA 530

Vinay sawant (nothing) (176 Points)

04 April 2021

How come does the increase in tolerable rate of deviation or tolerable misstatement has decreasing effect on sample size ?
I am not getting it as it should happen exactly opposite...

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Ankit Neema (2742 Points)
Replied 04 April 2021

Please elaborate more

CA Amrita Chattopadhyay (Audit & Assurance) (13134 Points)
Replied 05 April 2021

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

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Vinay sawant (nothing) (176 Points)
Replied 06 April 2021

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...

CA Amrita Chattopadhyay (Audit & Assurance) (13134 Points)
Replied 06 April 2021

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.

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