[jslo123]

I really need help with this statement:

Would the same size increase or decrease if the risk of assessing control risk too low increased?

DECREASE

WHHHYYY? Shouldn’t it increase if risk increased??

Test in 6 days

Thanks a lot!!

[Hhhh]

Hey jslo!

I think it'a simple conceptual problem

In attribute sampling, Risk of assessing control risk and Tolerable deviation rate have inverse relationship with sample size. Therefore, when the risk of assessing control risk too low INCREASES, sample size should DECREASE. I hope this helped and good luck!

Test in 3 Days..

[Mike J]

Always come back to why you exist as an (external) auditor–do external users have enough information available to them to make safe assumptions about the audit client? Thus we want to know of the financial statements present fairly.

So, as auditors we assess risks.

Think of another concept–we do not give absolute assurance that the financial statements present fairly, right? It would be impossible to look at EVERY transaction and EVERY account balance. No, we give REASONABLE assuarance that the financial statements present fairly.

What does that mean? We perform tests here and there.

So, if there is an increased chance that we will not assess the risk of material misstatements (that affects the financial statements to a degree that will adversely affect what external users will do), the auditor will want to look at more accounts and more documents.

That requires more work and thus a larger sample size.

[STP]

I'm not 100% sure but I think the biggest thing you should look for is the wording of the question. They usually ask this in two ways. First, would be increase in the “ALLOWABLE risk of assessing control risk too low. Second, increase “in risk of assessing control risk too low” The first one would be an inverse because due to whatever circumstances the assessment of the risk of assessing control risk too low is low therefore they're relying on the assessment that the risk is low, if ALLOWABLE risk decreases it means they are allowing for less risk because they assess that it is likely that they will assess CR too low and increase sample size. The second one is simply stating that the risk of assessing CR too low itself has actually increased and not the allowable amount of risk and a larger sample size is needed for the IC procedure to be relied upon. Yes, more risk does mean larger sample size. Once again I'm not 100% sure on this but from all the questions that I've seen it's appeared that the questions will be worded differently to throw you off.

[darthlarryboy]

Found this from 2012, on this forum:

“I was having this same exact question. No, it’s not a typo in the Wiley book… I found other sources explicitly saying that RACRTL (risk of assessing control risk too low) is inversely related to sample size.

I think what we are doing is reading it/interpreting it wrong. Read the question as “We’re OKAY with RACRTL going up, therefore we’re cool with a smaller sample size”.

If you were to reword this to mean “Uh oh, RACRTL just went way up, crap!” then intuitively, yes you’d then want to increase the sample size.”

So read it as “we’re okay with RACRTL going up” which would lead to you not needing as big of a sample size.

Conversely, “we need to work to make RACRTL go down” which would mean you now need a larger sample size.

One way of interpreting the statement is kind of reactionary response (the one which will lead you to confusion) whereas the book/exams expect you to interpret the statement in a proactive way (e.g. “we’re okay with increased risk” OR “we want to work to lower this particular risk”)

[Anonymous]

Do you guys know where in the AL I can find more info on this?

I want to get a better understanding of it and I don't think my study material does a good job with it.

[Jam05]

Just memorize the fact that it has an INVERSE Relationship on Sample Size..if you get into all the little details of this exam..you will lose your mind..thats just my two cents lol

But here is a logic behind it..if the auditor is willing to accept greater risk and assessing control risk too low, than a smaller sample size can be used.

[Anonymous]

Thank you for your reply.

Im more of a narrow thinker so the details from the AL would really be helpful for me! Is it just me or is it impossible to find it there? I tried looking for details about inherent risk, control risk, etc in the AL and I cant find anything good.

[Author]

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