Question

1. How is non-sampling risk reduced?

2. In tests of controls, there are two types of sampling risk. For each type, give a short description and identify whether it affects audit efficiency or audit effectiveness.

3. In substantive tests, there are two types of sampling risk. For each type, give a short description and identify whether it affects audit efficiency or audit effectiveness.

4. Which one is of greater concern to the auditor: risk affecting audit effectiveness or risk affecting audit efficiency? Explain.

5. What are the risk considerations in obtaining audit evidence?

Answer 1

1. Non Sampling Risk is the probability of arriving at an incorrect conclusion, irrespective of selecting a correct sample. It can be Reduced by

High level of Planning and Review, Applying Correct Audit Procedures, Applying Professional Judgement in interpretation of audit test results.

2. Two types of sampling risk are efficiency and effectiveness risk. Efficiency risk (type I error risk) is the risk that the auditor concludes that the population is worse in terms of errors than it really is.Effectiveness risk(type II error risk) is the risk that the auditor concludes tha the population is better than it really is. It is too related for efficiency of the audit.

3. While Performing Substantive Tests, Sampling Risk are The risk of incorrect acceptance and The risk of incorrect rejection. The risk of incorrect acceptance is the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when it is materially misstated whereasThe risk of incorrect rejection is the risk that sample support the result that recorded account balance is materially misstated when it is not materially misstated.

5. A large part of work involved in the performance of an audit consists of obtaining audit evidence so that opinion to be drawn based on that.

For Reliable Evidence , Inspections may be conducted.

External evidence should be given preference over internal ones like External Confirmation.

Written and Documented Evidence are more useful than oral like Written Representations.

For Accuracy Reperformance is good.