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

The auditor of Narmada Pharma Ltd expects a high rate of deviation in the payment-authorisation control, based on prior-period results and recent changes in accounting personnel. Which statement is consistent with SA 530 Appendix 2?

A higher expected deviation rate increases the sample size needed to estimate the actual deviation rate reasonably, and high expected control deviation rates ordinarily warrant little, if any, reduction in the assessed risk of material misstatement.

  1. AA high expected deviation rate decreases sample size and justifies a large reduction in assessed risk
  2. BA high expected deviation rate increases sample size, and ordinarily warrants little, if any, reduction of the assessed risk of material misstatementCorrect
  3. CExpected deviation rate has a negligible effect on sample size, as only population size matters
  4. DA high expected deviation rate means tests of controls must be replaced by inquiry alone

Explanation

SA 530 says the higher the expected rate of deviation, the larger the sample size needed for a reasonable estimate, and high expected control deviation rates ordinarily warrant little, if any, reduction of assessed risk. Factors include prior-period results and changes in personnel or controls.

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