Professional Documents
Culture Documents
1. The auditor is required to express his opinion on the true and fair view of the financial
statement. For this, the auditor needs to decide the extent of checking. It is primarily a
matter of auditor’s professional judgement and there is nothing statutorily mentioned
regarding what work is to be done, how to do it and to what extent.
2. The use of sampling technique is also not obligatory.
3. To ensure good and reasonable standard of work, an auditor must adopt standards and
techniques which lead him to an informed professional opinion. On a consideration of the
fact, it is in the interest of the auditor if he decides to form an opinion on the basis of part
checking, he should adopt standards and techniques which are widely followed and have a
reasonable basis.
4. Statistical theory is based on scientific law. Arbitrary theory lacks basis and acceptability.
The application of audit procedure on less than 100% of the items of population of audit
relevance such that each sampling unit have chances of selection in order to provide auditor with
reasonable basis on which to draw conclusion on the entire population.
Population
Population is the entire set of data from which sample is selected and about which the auditor
wishes to draw conclusion. The individual item that make up the population is known as sampling
units.
Characteristics of population
1. Appropriateness: The auditor must determine that the population on which sampling is
performed is appropriate for specific audit objective. It includes consideration of direction
of testing.
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Standard of Auditing
2. Completeness: The auditor must ensure that the population is complete. The if auditor
intends use the sample to draw conclusion whether the control activity operated effectively
during a financial period must include all the related information during that period.
3. Reliable: When performing sampling, the audit procedure is performed to ensure that the
population of the sampling is sufficiently complete and accurate.
Approaches of sampling
Sampling risk can be understood as the difference between the conclusion based on the
sample and the conclusion based on the entire population, if similar audit procedures are
applied. Sampling risk leads to two types of erroneous conclusions
1. On test of controls, the auditor may conclude that controls are more effective than they
actually are. On test of details, the auditor may conclude that there is not material
misstatement when it actually existed. The auditor is primarily concerned with this type
of erroneous conclusion. This affects the audit efficiency and auditor may further leads
to give an inappropriate opinion.
2. On test of control, the auditor may conclude that controls are less effective than they
actually are. On test of details, the auditor may conclude that there is a material
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Standard of Auditing
misstatement when it actually does not exist. This type of erroneous conclusion may
lead to affect audit efficiency and further lead to additional audit procedures to
establish that initial conclusions were incorrect.
Non sampling risk is because of which an auditor reaches an erroneous conclusion and that
is not related to sampling risk.
The non-sampling may arise because of inappropriate audit procedure, misinterpretation
of evidence and failure to recognize misstatement/ deviation.
The sources of non-sampling risk are
1. Human mistake
2. Misinterpretation of results
3. Applying audit procedure not appropriate for audit objective
4. Relying on erroneous information
Sample design
When deciding the sample design the auditor shall take into consideration the purpose of
audit procedure and the characteristics of population.
When deciding the sample design the auditor shall consider the purpose of audit and the
combination of audit procedure that are best likely to achieve that purpose.
In consideration of the purpose of audit, the auditor should have a clear understanding of
the deviation/ misstatement such that all, and only, those conditions are taken into
account for evaluating deviations and misstatements which are relevant to audit procedure.
In consideration of characteristics of population, the auditor assesses the rate of deviation
of controls based on the understanding of relevant control or evaluation of small number
of data.
Data analytics is defined as the process of inspecting cleaning, transforming and modelling data with the
goal of highlighting useful information, suggesting conclusions and supporting decision making.
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