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CMA Intermediate · Corporate Accounting and Auditing · Nature, Scope, Objectives and Significance of Auditing

During the audit of Kaveri Textiles Ltd, the auditor tests a sample of 40 invoices from a population of 4,000 and finds that 2 contain errors. The auditor concludes the population is reasonably reliable without checking all items. Which feature of the scope of modern auditing does this illustrate?

This illustrates test checking or sampling. The auditor examines only 40 of 4,000 invoices, which is 1%, and infers about the whole population, a method that modern audits adopt depending on assessed risk and internal control. It is not complete verification, since most invoices were not examined.

  1. ATest checking, since the auditor forms a view on the whole population by examining a representative sample, based on the assessed risk and internal controlCorrect
  2. BContinuous audit, since the auditor visits the company throughout the year
  3. CComplete verification, since every transaction has been vouched
  4. DInterim audit, since the check was made before the year end

Explanation

Examining 40 of 4,000 invoices (1%) and drawing a conclusion on the population is test checking or sampling, which modern audits use depending on risk and the strength of internal control. It is not complete verification because 3,960 invoices were not examined. The facts say nothing about timing, so continuous or interim audit does not apply.

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