How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?
A) An increase in tolerable misstatement would increase sample size, but an increase in assessed level of control risk would decrease sample size.
B) Both an increase in tolerable misstatement and an increase in assessed level of control risk would increase sample size.
C) Both an increase in tolerable misstatement and an increase in assessed level of control risk would decrease sample size.
D) An increase in tolerable misstatement would decrease sample size, but an increase in assessed level of control risk would increase sample size

Question

Quizplus · Accepted Answer

An increase in tolerable misstatement means that the auditor is willing to accept a higher level of error in the financial statements, so the sample size can be reduced. On the other hand, an increase in assessed level of control risk means that the auditor has determined that the controls are not effective, so more substantive testing is required, thus increasing the sample size. Therefore, an increase in tolerable misstatement would decrease sample size, but an increase in assessed level of control risk would increase sample size.

How Would Increases in Tolerable Misstatement and Assessed Level of Control