## Non-Sampling Risk

The risk that the auditor reaches an erroneous conclusion for any reason NOT related to sampling.

### Sources (mnemonic: HMAR)

H – Human Mistakes
M – Misinterpreting sample results
A – Applying audit procedures not appropriate to the audit objective
R – Relying on erroneous information

> Critical point: Non-sampling risk cannot be mathematically measured (unlike sampling risk, which can be quantified using probability theory).

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## Tolerable Level

The maximum level of misstatement or deviation the auditor is willing to accept before concluding there is a problem.

	Tolerable Misstatement (TOD)	Tolerable Rate of Deviation (TOC)
Nature	A monetary amount	A rate/percentage
Set by	Auditor	Auditor
Purpose	Obtain assurance that actual misstatement in population does not exceed this amount	Obtain assurance that actual deviation rate in population does not exceed this rate

### Relationship to Sample Size

Lower tolerable level → Larger sample needed (auditor is being stricter)
Higher tolerable level → Smaller sample needed

Worked example

### Example 1

Auditor sets tolerable misstatement = ₹5 lakhs for the debtors balance. After projecting sample results: projected misstatement = ₹3L → balance accepted. If projected misstatement = ₹7L → auditor requests adjustment since the tolerable threshold is breached.

### Example 2

Auditor sets tolerable deviation rate = 5% for purchase authorization control. Sample of 60 items shows 3 deviations (5% rate = at the boundary — auditor must use judgment). If 4 deviations found (6.7% > 5%), auditor concludes control is unreliable and expands substantive procedures.

⚠️ Common exam mistakes

Confusing tolerable misstatement (monetary ₹) with tolerable rate of deviation (%) — each applies only to its respective test type
Setting tolerable misstatement equal to overall materiality — in practice it is set lower to allow a cushion for aggregation of errors across multiple accounts
Thinking non-sampling risk is zero if the auditor follows correct procedures — it cannot be completely eliminated, only minimized

Reference: — SA 530 – Audit Sampling

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Non-Sampling Risk and Tolerable Level

Worked example

⚠️ Common exam mistakes