When selecting a sample size for substantive tests of balances which factor, other factors being equal, would result in a larger sample?
A)A decrease in the tolerable misstatement
B)Small expected misstatements
C)An increase in the tolerable misstatement
D)An increase in the acceptable risk of incorrect acceptance

Question

Quizplus · Accepted Answer

When the tolerable misstatement decreases, it means that the auditor is willing to accept a smaller amount of material misstatement in the financial statements. As a result, a larger sample size would be needed to provide sufficient evidence that the financial statements are free from material misstatement. This is because a smaller tolerable misstatement means that the auditor needs to be more certain that there is no material misstatement in the account balance or transaction being tested, hence a larger sample size is needed to achieve this level of assurance.

When Selecting a Sample Size for Substantive Tests of Balances