CA Intermediate · Auditing and Ethics · Audit Evidence

During the audit of Orion Steels Ltd, the auditor selects 60 sales invoices by statistical sampling to test whether each was approved by an authorised person. Tolerable deviation rate is 5%. The auditor finds 4 invoices without approval and finds that, for these, goods were nevertheless dispatched and cash received. What is the most appropriate conclusion under SA 530?

The deviation rate is 4 out of 60, which is about 6.67% and exceeds the 5% tolerable rate. The auditor should conclude the control may not be operating effectively and revise the risk assessment and substantive procedures, even though the particular transactions proved valid. A control deviation rate is not a monetary misstatement.

1. AThe sample deviation rate of 6.67% exceeds the tolerable rate, so the auditor should consider that the control may not operate effectively and revise risk assessment and substantive procedures, even though the transactions themselves turned out validCorrect
2. BThe deviations are not significant because cash was received, so no change is needed
3. CThe sample is invalid and must be replaced by a non-statistical sample
4. DThe auditor should extrapolate the deviation rate as a monetary misstatement of 6.67% of sales