Question

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

Answer 1

.Non sampling risk is the rish attached with a selected sample . The probability of arriving at an incorrect conclusion.

In simple words the probablity that Person commonly called as Auditor will arrive at conclusion based on his sample which is not free from misstatements and errors.Therefore leading to express wrong opinion .Nonsampling risk includes all audit risks other than sampling risk.

Examples of non-sampling risk include:

• application of inappropriate audit procedures – even if the sample is good, thus reaching wrong conclusion
• misinterpretation of audit evidence – even if the audit procedures gave correct evidence but auditor is unable to understand audit evidence and thus reach wrong conclusion.
• failure to recognize misstatements – as misstatement was present, but auditor (due to any reason) fail to recognize the existence of misstatement(s).

Non sampling and auditing:

Since , Nonsampling risk includes all audit risks other than sampling risk.A high level of audit planning and review can minimize the amount of nonsampling risk.

Audit risk is the risk that material misstatement exists and which unable the auditor to express opinion on financial statements without any prejudice.

audit risk is a function of risk of Material Misstatement and Detection risk.

Sampling and Non Sampling are part of Detection Risk.

Undetected misstatements could exist because of the presence of sampling risk and non-sampling risk

.

Since, auditor is required to form opinion on True and Fair view of financial statements.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.The auditor also have to apply a correct procedure to make a good judgment of the sample.

Hence, non sampling risk is part of audit risk