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CMA Intermediate · Corporate Accounting and Auditing · Audit Sampling, Audit Techniques and Analytical Procedure

In a test of controls over purchase approvals for Kaveri Textiles Ltd, the auditor finds a sample deviation rate much higher than expected. According to SA 530, what is the most likely consequence, unless further audit evidence substantiating the initial assessment is obtained?

An unexpectedly high sample deviation rate may lead to an increase in the assessed risk of material misstatement. SA 530 states this applies unless the auditor obtains further audit evidence that substantiates the initial risk assessment.

  1. AA decrease in the assessed risk of material misstatement
  2. BAn increase in the assessed risk of material misstatementCorrect
  3. CNo change, because deviations in samples are not extrapolated
  4. DAutomatic withdrawal from the audit engagement

Explanation

SA 530 says that for tests of controls, an unexpectedly high sample deviation rate may lead to an increase in the assessed risk of material misstatement, unless further evidence substantiating the initial assessment is obtained. A decrease would be illogical, and the standard does not require withdrawal.

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