Question

In this chapter we have referred to the term non-sampling risk. Outline what you believe the term means and give some examples of what you consider to be a non-sampling risk

Note : This is question from Book : The Audit Process (IGSM) 4th edition Chapter Sampling

Answer 1

Non Sampling risk means the risk apart from the sampling risk and it covers the audit risk. It can also be said that auditor has taken the samples properly but the procedures or the conclusions drawn are quite wrong to it. Hence some of the instances which makes a non sampling risk are:

1) Concept of "materiality" definition: No item is material in all circumstances, what may be material in one circumstance may not be material in another. To control such type of risk pne could have determined materiality of an item as individually, aggregated way, legal consideration, legal definition, its relative impact or in a special context. Example- Improper disclosure of an accounting policy in the Noted to the Annual Financial Statements may affect economic decisions.

2) Possibility of misinterpretation: An audit does not guarantee that all material misstatements will be detected as the audit evidence available to the auditor is persuasive rather than conclusive and other reaaon could be inherent limitations of internal control.

3) Reliability of the Audit Process applied: The reliability of audit evidence depends on its source even if its a internal source or a external source. It would depend on inspection, observation, inquiry and computation made or the analytical review drawn from it. Hence the process applied can also be inappropriate.