Walter Polonia was explaining to his junior staff the implications of sampling risk when conducting substantive testing. He made the following two statements:
"If we conclude that a material misstatement does not exist when it does, then we have an increased control risk."
"If we conclude that a material misstatement exists when it does not we have an inefficient audit."
Which statements, if any, were true?
A) (i)
B) (ii)
C) (i) and (ii)
D) neither (i) or (ii)

Question

Quizplus · Accepted Answer

Both statements are incorrect. 
Statement (i) is incorrect because a material misstatement would result in an increased detection risk, not an increased control risk. 
Statement (ii) is incorrect because concluding that a material misstatement exists when it does not would result in an over-estimation of the risks, not an inefficient audit. Therefore, the correct answer is Option B.

Walter Polonia Was Explaining to His Junior Staff the Implications