ASA 530 - Audit Sampling and Other Means of Testing - April 2006
APPENDIX 1APPENDIX 1
Start here
Get a plain-English read of APPENDIX 1
Turn the raw legal text into a practical explanation grounded in ASA 530 - Audit Sampling and Other Means of Testing - April 2006.
APPENDIX 1
EXAMPLES OF FACTORS INFLUENCING SAMPLE SIZE FOR TESTS OF CONTROLS
The following are factors that the auditor ordinarily considers when determining the sample size for tests of controls. These factors, which need to be considered together, assume the auditor does not modify the nature or timing of tests of controls or otherwise modify the approach to substantive procedures in response to assessed risks.
| FACTOR | EFFECT ON SAMPLE SIZE |
|---|---|
| An increase in the extent to which the risk of material misstatement is reduced by the operating effectiveness of controls | Increase |
| An increase in the rate of deviation from the prescribed control activity that the auditor is willing to accept | Decrease |
| An increase in the rate of deviation from the prescribed control activity that the auditor expects to find in the population | Increase |
| An increase in the auditor’s required confidence level (or conversely, a decrease in the risk that the auditor will conclude that the risk of material misstatement is lower than the actual risk of material misstatement in the population) | Increase |
| An increase in the number of sampling units in the population | Negligible effect |
(a) The extent to which the risk of material misstatement is reduced by the operating effectiveness of controls. The more assurance the auditor intends to obtain from the operating effectiveness of controls, the lower the auditor’s assessment of the risk of material misstatement will be, and the larger the sample size will need to be. When the auditor’s assessment of the risk of material misstatement at the assertion level includes an expectation of the operating effectiveness of controls, under ASA 330, the auditor needs to perform tests of controls. Other things being equal, the more the auditor relies on the operating effectiveness of controls in the risk assessment, the greater is the extent of the auditor’s tests of controls (and therefore, the sample size is increased).
(b) The rate of deviation from the prescribed control activity the auditor is willing to accept (tolerable error). The lower the rate of deviation that the auditor is willing to accept, the larger the sample size needs to be.
(c) The rate of deviation from the prescribed control activity the auditor expects to find in the population (expected error). The higher the rate of deviation that the auditor expects, the larger the sample size needs to be so as to be in a position to make a reasonable estimate of the actual rate of deviation. Ordinarily, factors relevant to the auditor’s consideration of the expected error rate include the auditor’s understanding of the business (in particular, risk assessment procedures undertaken to obtain an understanding of internal control), changes in personnel or in internal control, the results of audit procedures applied in prior periods and the results of other audit procedures. High expected error rates ordinarily warrant little, if any, reduction of the assessed risk of material misstatement, and therefore in such circumstances tests of controls would ordinarily be omitted.