Page 14 - CIMA SCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – STRATEGIC CASE STUDY

focussed on the appropriate area. IA does not have the time to check everything and this
information can help decide where to focus their attention.

NB. Not all compliance tests require substantive work to be done first.

Audit testing, both compliance and substantive, involves observing, analysing, monitoring,
reconciling and checking. It will also probably be necessary to undertake some form of sampling.
Sampling is testing a proportion of a population to gain assurance about the population as a
whole. However, as soon as the IA decides to sample a population, there are risks that are
brought into the audit:

Sampling risk - this is the risk that the auditor’s conclusion, based on the results of the sample,
may be different from the result that would have been obtained had all items in the population
been tested. This risk can never be removed if sampling is done. For instance, the IA may wish to
check that the quality of supplies from HJM and Force are of appropriate standard and on the day
they review the samples they check everything is fine, but it is impossible to review every single
component made and supplied. Another example may be that auditor wishes to check the testing
processes are being carried out appropriately to ensure the risk of litigation from irritation or
inaccuracies are controlled, the time they check everything is ok but it would be impossible to
review every test that is carried out.

Non-sampling risk - this is the risk that the auditor may use inappropriate procedures, or
misinterpret evidence that the test results give. As a result the auditor would fail to recognise an
error. This risk is avoidable if auditors use the appropriate procedures hence the need to ensure
that the IA function is that is experienced in checking the compliance with regard to the
procurement cycle or product testing.

54 KAPLAN PUBLISHING