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

While testing a sample of payment vouchers for evidence of authorisation, an auditor selects a cheque that has been properly cancelled. Under SA 530, what should the auditor do if satisfied that the cancellation is proper and is not a deviation?

The auditor should perform the procedure on an appropriately chosen replacement item. SA 530 requires a replacement when the procedure is not applicable to the selected item, and a properly cancelled cheque is not a deviation, so it should neither be counted as an error nor simply dropped.

  1. ATreat the cancelled cheque as a deviation and extrapolate it to the population
  2. BExamine an appropriately chosen replacement itemCorrect
  3. CReduce the sample size by one item and proceed
  4. DIgnore the item and conclude on the remaining sample items only

Explanation

SA 530 states that if the audit procedure is not applicable to a selected item, the auditor performs the procedure on a replacement item. A properly cancelled cheque is such a case and is not a deviation. Treating it as a deviation would overstate the error rate, and dropping it would shrink the sample below the intended size.

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