An auditor is using non-statistical sampling to test the operating effectiveness of a control. The auditor selects 40 items from a population and finds 2 deviations. If the tolerable deviation rate is 5%, what would be the most appropriate conclusion?
- AThe control is operating effectively because the sample deviation rate (5%) is acceptable.
- BThe auditor cannot conclude on the operating effectiveness without using statistical sampling.
- CThe control is not operating effectively because the projected deviation rate likely exceeds the tolerable deviation rate.
- DThe control is operating effectively because the sample deviation rate (5%) equals the tolerable deviation rate.
Show answer & explanationAnswer & explanation
Correct answer: C. The control is not operating effectively because the projected deviation rate likely exceeds the tolerable deviation rate.
With non-statistical sampling, if 2 deviations are found in 40 items, the sample deviation rate is 5% (2/40). However, non-statistical sampling requires a conservative approach. The actual population deviation rate could be higher than the sample rate. Since the sample rate already equals the tolerable rate, there's a high risk that the true population deviation rate exceeds 5%, leading to the conclusion that the control is not operating effectively.
Why the other options are wrong
- A. This ignores the inherent sampling risk and the need for a margin of safety in non-statistical sampling.
- B. Auditors can conclude with non-statistical sampling, but they must use professional judgment and be conservative.
- D. The sample rate equaling the tolerable rate in non-statistical sampling typically means the control is NOT effective due to sampling risk.
Non-Statistical Sampling Conclusion
Drawing a conclusion about a population based on a non-random sample, requiring significant professional judgment and a conservative approach, especially when the sample deviation rate approaches or exceeds the tolerable rate.
- Does not quantify sampling risk.
- Requires professional judgment.
- If sample deviation rate is close to or exceeds tolerable rate, control is likely ineffective.
Memory trick: RISK: Rate, Ineffective, Sample, Know your limits.