Question

Discuss and define the nature of sampling risk and non-sampling risk. **Please make sure to include all effects of sampling risk on substantive tests of details and on tests of internal controls.

Answer 1

The nature of sampling risk is that “Auditor to draw a sample of less number of items of the total population which supposed to have same characteristics as that of population.” The Sampling risks arises when the conclusion taken by the auditors are different from the conclusion if whole population is considered. The risks attached with the Sampling can affect the substantive tests of details and controlling test. The objective of auditing and sampling fails as the control would be concluded more effective or less effective to that attached with actual.

The nature of Non-sampling risk are that “Arises from erroneous conclusion reached by the auditors for all secondary / other reasons other than related to sampling risk.” Like most available audit evidences are persuasive and not providing any conclusion. Here auditor can mistakably use inappropriate procedures, do wrong interpretation of evidence and all these lead to error not being recognized and lack of control.