Question

Explain non-sampling risk. Give an example and explain how it relates to auditing.

Answer 1

Non-sampling risk is the risk that despite having selected an appropriate sample, the auditors will arrive at wrong conclusion. If the auditor has chosen right sample and still makes the faulty conclusion due to other reasons, it is known to be a Non sampling risk. Auditors here have mistakenly used the inappropriate procedure for judging the entire sample which leads him to make the non-sampling risk.

Auditors need to give the opinion on the financials for their truthfulness and fairness. He cannot gives the opinion by applying audit procedures to the selected samples rather than on the entire population. If the sample which he has selected is not correct, the situation is said to result in sample risk while if he had picked the right sample but have not applied the correct procedure, then the situation will be referred as the non-sampling risk.

Non Sampling risk takes place in the following situations:

1- Inappropriate procedure: The situation where the auditor has chosen the right sample but has applied the wrong audit procedure.

2- Misinterpret the audit evidence: When the procedure auditor has applied is correct but he did not properly understand the evidence.

3- Unable to recognize misstatement: The situation where there is the misstatement present but the auditor fails to recognize it.

Examples of nonsampling risk are:

• Applying inappropriate audit procedures

• Failure to detect a material misstatement

• Misinterpretation of audit test results