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CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

An audit team at Sahyadri Foods Pvt Ltd plans to place greater reliance on the operating effectiveness of controls over sales when assessing the risk of material misstatement, other things being equal. What is the effect on the sample size for tests of controls under SA 530 factors?

The sample size increases. Under SA 530, the more assurance the auditor intends to draw from the operating effectiveness of controls, the lower the assessed risk of material misstatement and the greater the extent of tests of controls, so a larger sample is needed.

  1. ASample size decreases because controls are already trusted
  2. BSample size increases because greater reliance on controls means a greater extent of tests of controlsCorrect
  3. CSample size is unaffected because only the population size matters
  4. DSample size is replaced by a census of all transactions

Explanation

SA 530 Appendix 2 says that the greater the reliance placed on the operating effectiveness of controls in the risk assessment, the greater the extent of tests of controls, so the sample size increases. Option A reverses this relationship.

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