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Hi,
On performing the test of controls and test of details, is there guidance for the auditor on setting the deviation for the errors in the sample?
my fear is that the set deviation might be accommodating more room for material errors therefore increase the detection risks. so we will be having double chance for errors to luck in( sample size and the ‘incorrect’ deviation).
thanks, kim.See page 68 of the notes for an illustration of 2% deviation rate for a test of controls. But appreciate that because controls are supposed to work – the auditor may have ZERO tolerance for deviations and so revert to wholly substantive procedures if there are ANY instances of a direct control not working (unless it can be shown to be an anomaly that is not representative of the population).
You will also find on the same page an illustration for a test of details.
I don’t really understand where you’re going with this idea of increasing detection risk. If RoMM is high, DR is “rendered low” by increasing sample sizes (for example) in order to detect material errors.
yeah i did understood how deviations works and what auditor can do in the events the errors are more than the deviation. my concern was the basis on which auditor can set the deviation to begin with. or it is purely a matter of professional judgement?
the last statement. sir,if RoMM which is essentially faulty control system is high, then we have to get DR as low as possible which will mean more audit work. ooh i see i was wrong. it is RoMM that will be high.
thanks,kim.Professional judgment … so auditor might set at 2%, but if actual deviation rate turned out to be 2.1% the auditor would likely reassess whether he could “live with” that. Equally, if actual deviation rate was 1.9% the auditor might reassess if that wasn’t a bit too close to unacceptable (!)
Haha! I like your conclusion!
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