Skip to content

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

For testing an approval control at Ganga Steels Ltd, the auditor first sets the tolerable rate of deviation at 8%. The auditor then revises it to 4%, keeping all other factors unchanged. According to SA 530, what happens to the sample size?

The sample size increases. SA 530 explains that the lower the tolerable rate of deviation, the larger the sample size must be, so tightening the tolerance from 8% to 4% requires testing more items.

  1. AIt decreases, because a lower tolerance means less testing
  2. BIt remains unchanged, as tolerable rate does not affect sample size
  3. CIt increases, because the lower the tolerable rate of deviation, the larger the sample size needs to beCorrect
  4. DIt becomes irrelevant, as the sample is replaced by inquiry

Explanation

SA 530 Appendix 2 states that an increase in the tolerable rate of deviation decreases sample size; conversely, the lower the tolerable rate, the larger the sample. Reducing it from 8% to 4% therefore enlarges the sample.

Did you get it right without looking?

One question tells you little. A timed set on Audit Principles and Techniques shows your real accuracy, how long you take and where you lose marks.

Practise Audit Principles and TechniquesFree diagnostic mock

More Audit Principles and Techniques questions