Which of the following is an accurate statement regarding how the acceptable risk of overreliance (ARO) and the acceptable risk of incorrect acceptance (ARIA) interact to affect evidence accumulation?
A) If internal controls are likely to be effective, preliminary control risk can be increased.
B) A lower control risk requires a lower ARO in testing the controls, which requires a smaller sample size.
C) If controls are found to be effective, control risk can remain low, which permits the auditor to increase ARIA, thereby requiring a smaller sample size in the substantive tests of details of balances.
D) If misstatements are considered unlikely, ARIA will decrease, and the sample size will also decrease.

Question

Quizplus · Accepted Answer

A lower control risk would allow the auditor to have a higher ARIA. This is because if controls are effective, the risk of incorrect acceptance is lower, and therefore the auditor can tolerate a higher level of ARIA without increasing the overall risk of material misstatement. This would lead to a smaller sample size in the substantive tests of details of balances. Choices A, B, and D do not accurately describe how ARO and ARIA interact to affect evidence accumulation.

Which of the Following Is an Accurate Statement Regarding How