Document ID: chunk:federal_register_of_legislation:F2021C01255:body:0:p6
Version: federal_register_of_legislation:F2021C01255
Segment Type: other
Provision Reference: 
Character Range: 15208–18298

(Ref: Para. A23)

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Application and Other Explanatory Material

Definitions

Non-Sampling Risk (Ref: Para. 5(d))

A1.             Examples of non-sampling risk include use of inappropriate audit procedures, or misinterpretation of audit evidence and failure to recognise a misstatement or deviation.

Sampling Unit (Ref: Para. 5(f))

A2.             The sampling units might be physical items (for example, cheques listed on deposit slips, credit entries on bank statements, sales invoices or debtors' balances) or monetary units.

Tolerable Misstatement (Ref: Para. 5(i))

A3.             When designing a sample, the auditor determines tolerable misstatement in order to address the risk that the aggregate of individually immaterial misstatements may cause the financial report to be materially misstated and provide a margin for possible undetected misstatements.  Tolerable misstatement is the application of performance materiality, as defined in ASA 320,[2] to a particular sampling procedure.  Tolerable misstatement may be the same amount or an amount lower than performance materiality.

Sample Design, Size and Selection of Items for Testing

Sample Design (Ref: Para. 6)

A4.             Audit sampling enables the auditor to obtain and evaluate audit evidence about some characteristic of the items selected in order to form or assist in forming a conclusion concerning the population from which the sample is drawn.  Audit sampling can be applied using either non-statistical or statistical sampling approaches.

A5.             When designing an audit sample, the auditor's consideration includes the specific purpose to be achieved and the combination of audit procedures that is likely to best achieve that purpose.  Consideration of the nature of the audit evidence sought and possible deviation or misstatement conditions or other characteristics relating to that audit evidence will assist the auditor in defining what constitutes a deviation or misstatement and what population to use for sampling.  In fulfilling the requirement of paragraph 10 of ASA 500, when performing audit sampling, the auditor performs audit procedures to obtain evidence that the population from which the audit sample is drawn is complete.

A6.             The auditor's consideration of the purpose of the audit procedure, as required by paragraph 6, includes a clear understanding of what constitutes a deviation or misstatement so that all, and only, those conditions that are relevant to the purpose of the audit procedure are included in the evaluation of deviations or projection of misstatements.  For example, in a test of details relating to the existence of accounts receivable, such as confirmation, payments made by the customer before the confirmation date but received shortly after that date by the client, are not considered a misstatement.  Also, a misposting between customer accounts does not affect the total accounts receivable balance.  Therefore, it may not be appropriate to consider this a misstatement in evaluating the sample results of this particular audit