Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

Which statement correctly describes sampling risk for nonissuers?

1. Sampling risk is always present

2. Nonsampling risk includes all aspects of audit risk

3. Nonsampling risk can only arise from sampling procedures

4. Sampling risk is limited to selection of audit items

The correct answer is: Nonsampling risk includes all aspects of audit risk

The correct understanding of sampling risk for nonissuers recognizes that sampling risk pertains to the inherent uncertainty that arises when auditors use a sample to draw conclusions about the entire population. The essence of sampling risk is that it always exists; even a well-designed sampling method cannot guarantee that the conclusions drawn will be correct. This is fundamental for auditors because they often do not have the resources to examine every single item in a population; thus, they rely on samples. Nonsampling risk, on the other hand, is tied to errors that are not related to the sampling process, such as mistakes in the audit methodology or misinterpretation of audit evidence. This risk encompasses a wide range of issues, including those stemming from human error, lack of experience, or failure to apply the appropriate auditing standards. It does not arise solely from the sampling procedure, making it broader and more complex than sampling risk and crucial for auditors to manage. The distinction between sampling and nonsampling risk is vital, particularly for nonissuers, as it informs their risk assessment and substantive testing strategies. Understanding that nonsampling risk is a factor in overall audit risk highlights the multifaceted nature of auditing and the necessity for careful planning and execution of audit procedures.