Will sample size increase or decrease if there is an increase in the tolerable misstatement?
There is an inverse relationship between sample size and tolerable misstatement, so the sample size would decrease if the tolerable misstatement increases.
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Will sample size increase or decrease if the assessed level of risk is higher than expected?
If the assessed level of risk is higher than what the auditor originally determined in the planning phase, then the audit team should increase their sample size or choose a testing method that provides for higher quality evidence.
What is a tolerable misstatement?
Tolerable misstatement is the application of the maximum amount of accepted (tolerable) errors within a given test sample. The goal of the audit test should be for the tolerable misstatement to be less than the materiality level of the financial statements as a whole.
What is risk of incorrect acceptance in audit sampling?
Risk of incorrect acceptance is the risk that the sample allows the auditor to conclude that financial statements are not materially misstated, when in fact they actually are. This will affect the effectiveness of the audit detecting existing material misstatements.