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

While testing trade receivables of Narmada Foods Ltd by a test of details, the auditor finds an unexpectedly high misstatement amount in the sample. Which conclusion is consistent with SA 530 in the absence of further audit evidence?

The auditor may believe the class of transactions or account balance is materially misstated. Under SA 530, an unexpectedly high misstatement amount in a sample leads to this belief unless further audit evidence shows that no material misstatement exists.

  1. AThe misstatement is isolated and the balance is fairly stated
  2. BThe auditor may believe the account balance is materially misstatedCorrect
  3. CThe sample must be reduced to remove the error
  4. DAnalytical procedures alone must replace sampling

Explanation

SA 530 states that for tests of details, an unexpectedly high misstatement amount in a sample may cause the auditor to believe that a class of transactions or account balance is materially misstated, absent further evidence that no material misstatement exists. Assuming it is isolated has no basis without such evidence.

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