Write short notes on Sampling Risks

Auditing and Assurance Revision Questions and Answers

Answer
As per NSA 530, “Sampling risk” arises from the possibility that the auditor’s conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure. There are two types of sampling risk:
a. the risk the auditor will conclude, in the case of a test of control, that control risk is lower than it actually is, or in the case of a substantive test, that a material error does not exist when in fact it does. This type of risk affects audit effectiveness and is more likely to lead to an inappropriate audit opinion; and
b. the risk the auditor will conclude, in the case of a test of control, that control risk is higher than it actually is, or in the case of a substantive test, that a material error exists when in fact it does not. This type of risk affects audit efficiency as it would usually lead to additional work to establish that initial conclusions were incorrect.
The mathematical complements of these risks are termed confidence levels.



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