@ GABE They are inverse. If you lower the amount of testing done, it increases the chances of material mistatements not being caught. If you increase the amount of testing done, it lowers the chances of misstatements.
GABE part 2. The most important thing as an auditor when auditing the financials is to look for misstatements (or eliminate them, etc) That accounts payable question, you just have to memorize. The most important thing regarding Accounts Payable is making sure the company doesn't understate liabilities. There are several tests to look for understatements. One being where the auditor looks for payemtns made to vendors after year end, but those invoices weren't recorded.
@Qlad Isnt auditing fun? The answer is A. When you assess the control risk too low, you are relying on the controls, even though you shouldn't. So you decrease testing. This is bad because it is a beta risk. It's the effectiveness of the audit. What does the phrase “assessing control risk too low” even mean?
So you have 1000 total items in a population, and there are 100 errors. Your sample contains 200 of the items. You would expect 20 of the items selected to contain errors (on average). However, in your sample, only 7 were errors. Lets say your tolerable rate was 13. So based on your sample, you are satisfied the controls are working (to stop misstatements). However, the true nature of the control is that is sucks. You are incorrectly assessing control risk here.
If you assess control risk too high, you won't miss any misstatements, but you will not be efficient.
Say the sample you selected had 38 errors, but it should only have 20. If 25 was the tolerable amount, you would incorrectly deduce the control isn't working, when it is.
FAR - 83
AUD - 73 92
BEC - 83
REG - 88
Licensed CPA in the state of Michigan
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