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dlwtistyle
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Joined: 23 May 2008
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Posted: 19 Sep 2008 at 13:58 \| IP Logged

For those of you using becker,

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

Increase in tolerable Increase in assessed

misstatement level of control risk

a. Increase sample size Increase sample size

b. Increase sample size Decrease sample size

c. Decrease sample size Increase sample size

d. Decrease sample size Decrease sample size

The answer is C, but I thought it was D, why???

For those of you with becker, open your book to A5-10. Look under 5 a, where it says "risk of assessing control risk too low". if you read the passage underneath, it says assessed risk has an INVERSE relationship to sample size.

Now turn to A5-17. look under b(1), it lists 3 things that have a direct relationship with sample size, including ASSESSED LEVEL OF RISK. The same thing is emphasized in the table below.

WTF??@!?!?! sounds like these two statements are contradicting each other. any advice? or am i just interpreting this wrong???? please help.

ebonyeyes
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Joined: 18 Aug 2008
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Posted: 19 Sep 2008 at 14:15 \| IP Logged

Let me see if I can help you out with this because I know how confusing this can be.

The "Assessed Level of Control Risk" and the "Risk of Assessing Control Risk too Low" are two different things.

"The Assessed Level of Control Risk" is what you assess (believe) control risk to be. If you assess that control risk is high, you will have an increased sample size. That's why there is a direct relationship.

"The Risk of Asessing Control Risk too Low" is how much risk you are willing to take that your assessment about control risk is wrong - Actual control risk is higher than your assessed (believed) control risk. The more risk you are willing to take on that your assessment of control risk is too low, the smaller your sample size.

ETA: "Tolerable Misstatement" and "The Risk of Assessing Control Risk too Low" work the same way. If you are willing to tolerate more misstatement, you have a smaller sample size. If you are willing to tolerate more risk that your assessment of control risk is too low, you have a smaller sample size.

I really hope this helps!

Edited by ebonyeyes on 19 Sep 2008 at 14:17

__________________
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REG - 98 (10/10/08)
FAR - 96 (11/26/08)

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moosen34
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Posted: 19 Sep 2008 at 14:15 \| IP Logged

The answer is C because if tolerable misstatement is increased, this means that you can "tolerate" a larger misstatement (your audited workpaper conclusion doesn't have to be as close to the client's number and you can tolerate it). Therefore, you can decrease the sample size and it will be okay.

If your risk of misstatement was higher, then yes, you would need to increase your sample size but in this question, your tolerable misstatement is higher.

If your level of control risk is increased, this means that you have a higher audit risk
AR=CR*IR*DR
Therefore you have to do more substantive testing to be comfortable with your conclusion so you must increase your sample size.

I hope this makes some sense

__________________
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Passed all the first time and I'm glad I only have to do this once in my life.
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dlwtistyle
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Posted: 19 Sep 2008 at 14:22 \| IP Logged

thanks guys, this one was killing me.

dsrajji
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Joined: 21 Jun 2006
Location: United States
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Posts: 36

Posted: 20 Sep 2008 at 12:25 \| IP Logged

ebonyeyes wrote:

Let me see if I can help you out
with this because I know how confusing this can be.

The "Assessed Level of Control Risk" and the "Risk of
Assessing Control Risk too Low" are two different
things.

"The Assessed Level of Control Risk" is what
you assess (believe) control risk to be. If you
assess that control risk is high, you will have
an increased sample size. That's why there is a
direct relationship.

"The Risk of Asessing Control Risk too Low" is how
much risk you are willing to take that your assessment
about control risk is wrong - Actual control risk is
higher than your assessed (believed) control
risk. The more risk you are willing to take on
that your assessment of control risk is too low, the
smaller your sample size.

ETA: "Tolerable Misstatement" and "The Risk of
Assessing Control Risk too Low" work the same way. If
you are willing to tolerate more misstatement,
you have a smaller sample size. If you are willing to
tolerate more risk that your assessment of
control risk is too low, you have a smaller sample
size.

I really hope this helps!

U rock ebonyeyes with AUD 99. Which materials did you
use to study and do you have experience in audit?

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