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

Ms Rao, a company secretary, tests 40 sampled purchase invoices of Himalaya Steels Ltd for approval evidence. Invoice no. 27 turns out to be a cancelled invoice, so the approval procedure cannot apply to it. What does SA 530 require?

She must perform the procedure on a replacement item. SA 530 requires that where an audit procedure is not applicable to a selected item, such as a cancelled invoice, the auditor performs the procedure on a replacement item instead of simply dropping it.

  1. ATreat the item as an error and extrapolate it to the population
  2. BPerform the procedure on a replacement itemCorrect
  3. CReduce the sample to 39 items and proceed without replacement
  4. DPerform the procedure on the next item only if management requests it

Explanation

SA 530 says that if the audit procedure is not applicable to the selected item, the auditor shall perform the procedure on a replacement item. Dropping the item silently would reduce the planned sample and is not what the standard requires. Treating it as an error is also wrong since it is a non-applicable item.

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