As the expected misstatement is large relative to the tolerable misstatement,the audit team would most likely
A) increase their degree of reliance on internal controls.
B) consider the possibility of an increased level of tolerable misstatement.
C) increase the sample size.
D) decrease the sample size.

Question

Quizplus · Accepted Answer

When the expected misstatement is large relative to the tolerable misstatement, it indicates a high level of risk. In such cases, it is advisable to increase the sample size to obtain more evidence and reduce the risk of making an incorrect conclusion on the financial statements' accuracy. Therefore, choice C, increasing the sample size, is the best option. Increasing reliance on internal controls (choice A) may not be sufficient to address the high risk, considering their limitations. It is not appropriate to consider an increased level of tolerable misstatement (choice B) since it would compromise the audit quality. Decreasing the sample size (choice D) would not help in increasing the reliability of the audit evidence.

As the Expected Misstatement Is Large Relative to the Tolerable