The Japanese Institute of
Certified Public Accountants
4-4-1 Kudan-Minami, Chiyoda-ku, Tokyo 102-8264, Japan
Phone: 81-3-3515-1130 Fax: 81-3-5226-3356
Email: international@sec.jicpa.or.jp
Website: www.jicpa.or.jp
October 31, 2007
Executive Director, Professional Standards
International Auditing and Assurance Standards Board
545 5th Avenue, 14th Floor
New York, New York 10017 USA
JICPA Comments on the Proposed International Standard on Auditing, ISA 530 (Redrafted),
Audit Sampling.
The Japanese Institute of Certified Public Accountants (“we”, “our”, “us” and “JICPA”) is
pleased to provide you with our comments on the Proposed International Standard on Auditing,
ISA 530 (Redrafted), Audit Sampling, (“Proposed ISA”). Based on our review, we have the
following comments:
Specific Comments
1. Are the objectives to be achieved by the auditor, stated in the proposed redrafted ISA,
appropriate?
(Comment)
The objective in the Proposed ISA is not outcome-based. We propose the following revision:
“The objective of the auditor when using audit sampling is to design and select the audit
sample, perform audit procedures on the sample items, and evaluate the results from the sample
in a manner that will provide to establish an appropriate basis for the auditor to drawing
conclusions about the population from which the sample is drawn, through:
(a) Designing and selecting the audit sample;
(b) Performing audit procedures on the sample items; and
(c) Evaluating the results from the sample.”
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2. Have the criteria identified by the IAASB for determining whether a requirement should be
specified been applied appropriately and consistently, such that the resulting requirements
promote consistency in performance and the use of professional judgment by auditors?
(Comment)
Please see our “Other Comments” below.
Other Comments
Paragraph 5(d)
Non-sampling risk should be defined based on paragraph 8 of the extant ISA 530, since the
definition of the non-sampling risk in the Proposed ISA seems to include sampling risk:
“The risk that the auditor reaches an erroneous conclusion for any reason not related to the
sample size. does not recognize misstatements or deviations included in the sample for what
they are.”
In addition, examples of the non-sampling risk in paragraph 8 of the extant ISA 530 should be
included as “Application and Other Explanatory Material” to paragraph 5(d).
Paragraphs 5(h) and (i)
The definition of tolerable misstatement in the Proposed ISA is different from paragraph 12 of
the extant ISA 530. In addition, the meaning of “an appropriate level of assurance” is unclear.
The term “tolerable misstatement” should be defined based on the extant ISA 530 as follows:
Tolerable misstatement – A maximum misstatement in a population that the auditor is willing to
accept. Tolerable misstatement is a planning concept and is based on the auditor’s preliminary
judgment that tolerable misstatement is not exceeded by the actual misstatement in the
population.
Tolerable rate of deviation – A maximum rate of deviation from a prescribed control that the
auditor is willing to accept. Tolerable rate of deviation is a planning concept and is based on the
auditor’s preliminary judgment that tolerable rate of deviation is not exceeded by the actual rate
of deviation in the population.
Paragraphs 5(j) and (k)
The terms “estimated maximum misstatement” and “estimated maximum rate of deviation”,
which are not used in the extant ISA 530, should not be newly introduced under the Clarity
project and, accordingly, should be deleted.
Paragraph 5(m)
To be consistent with the extant ISA 530, the word “demonstrably” should be deleted:
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“A misstatement or deviation that is demonstrably not representative of misstatements or
deviations in a population.”
Paragraphs 6, 9, 12, 14 and A4
The expression “the objectives of the audit procedure”, which may cause confusion with “the
objectives of the ISAs”, should be changed to “the purpose of the audit procedure” as in the
Exposure Draft ISA 500 (Redrafted).
Paragraph 14(a)
Paragraph 14(a) should be deleted, since, for tests of control, the determination of the projected
rate of deviation for the population is not required by paragraph 51 of the extant ISA 530.
Paragraph A16
If the population is not changed, the smaller the sample size, the lower the possibility that the
anomaly is included in the sample. However, as the population is smaller, the possibility that the
anomaly is included in the sample is not always low, even if the sample size is small. Therefore,
paragraph A16 should be explained based on the percentage of the audit sample to the
population:
“The smaller percentage of the population the audit sample size in which the misstatement or
deviation occurs, the more difficult it will be for the auditor to obtain the level of certainty
necessary to determine that the misstatement or deviation identified is an anomaly.”
Paragraph A19
The term “tolerable misstatement” should be used in the second sentence:
“If the total amount of projected misstatement plus anomalous misstatement is less than but
close to that the auditor deems to tolerable misstatement, the auditor…”
Paragraph A20 and Appendix 5
The term “estimated maximum misstatement”, which is not used in the extant ISA 530, should
not be newly introduced under the Clarity Project and, accordingly, should be deleted.
Treatment of the projected rate of deviation for tests of control
Paragraph 53 of the extant ISA 530 (“For tests of controls, no explicit projection of errors is
necessary since the sample error rate is also the projected rate of error for the population as a
whole.”), which is helpful for the reader’s understanding, should be added after paragraph A20.
In addition, the treatment of the anomaly for tests of control should also be explained.
Appendix 1
First sentence
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To be consistent with paragraph A8, we propose the following revision:
“In considering determining the characteristics attributes of the population from which the
sample will be drawn, the auditor may determine that stratification or value weighted selection
is appropriate.”
Stratification
The treatment of anomaly in the case of stratification in paragraph 52 of the extant ISA 530,
which is deleted from the Proposed ISA, should be added after paragraph 2 of Appendix 1, since
it is helpful for the reader’s understanding:
“If a class of transactions or account balance has been divided into strata, the error is projected
for each stratum separately. Projected errors plus anomalous errors for each stratum are then
combined when considering the possible effect of errors on the total class of transactions or
account balance.”
Appendix 2
To be consistent with “Requirements” and “Application and Other Explanatory Material,” we
propose the following revisions:
Factor 2
“An increase in the tolerable rate of deviation rate of deviation from the prescribed control
activity that the auditor is willing to accept”
“The rate of deviation from the prescribed control activity the auditor is willing to accept
(Ttolerable rate of deviation). The lower the tolerable rate of deviation rate of deviation that
auditor is willing to accept, the larger the sample size needs to be.”
Factor 3
“An increase in the expected rate of deviation in the population to be tested rate of deviation
from the prescribed control activity that the auditor expects to find in the population”
“The expected rate of deviation from the prescribed control activity the auditor expects to find
in the population to be tested (expected control deviation). The higher the rate of...”
Appendix 3
To be consistent with “Requirements” and “Application and Other Explanatory Material,” we
propose the following revisions:
Factor 4
“An increase in the total misstatement that the auditor is willing to accept (tolerable
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misstatement)”
“The total misstatement the auditor is willing to accept (Ttolerable misstatement). The lower the
tolerable misstatement total misstatement that the auditor is willing to accept, the larger the
sample size needs to be”
The explanation of stratification, which is repetition of the definition, should be deleted:
“6. Stratification. When there is a wide range (variability) in the monetary size of items in the
population, it may be useful to group items of similar size into separate subpopulations or strata.
This is referred to as stratification. When a population can be….”
The following explanation about block selection in Appendix 3 of the extant ISA 530, which is
deleted from the Proposed ISA, should be included in Appendix 3, since it is helpful for the
reader’s understanding:
“(d) Block selection involves selecting a block(s) of contiguous items from within the
population. Block selection cannot ordinarily be used in audit sampling because most
populations are structured such that items in a sequence can be expected to have similar
characteristics to each other, but different characteristics from items elsewhere in the population.
Although in some circumstances it may be an appropriate audit procedure to examine a block of
items, it would rarely be an appropriate sample selection technique when the auditor intends to
draw valid inferences about the entire population based on the sample.”
In closing, we wish to express our appreciation for this opportunity to comment on this
Proposed International Standard on Auditing and hope you will consider our comments.
Sincerely yours
Makoto Shinohara
Executive Board Member - Auditing Standards
The Japanese Institute of Certified Public Accountants
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