[Anonymous]

So I came across this question in the wiley test bank and i just wanted to make sure im thinking about this the correct way so i pass this damn Audit exam.. haha. So here’s the question

An Auditor may decide to increase the risk of incorrect rejection when:

a) Initial sample results do not support the planned level of control risk

b) The cost and effor of selecting additional sample items is low

c) Increased reliability from the sample is desired

d) Many differences (audit value minus recorded value) are expected

The correct answer is B

Here’s my thought process on this: With incorrect rejection, the auditor rejects a sample and says the its bad when in actuality everything is ok. So if you have a higher sample size, the chance of you rejecting a sample is higher because you are testing more things and have more of a chance to say naw, this isnt good and completely reject it. Based on that thought process, B is correct because if the cost of additional samples is low, then you can have a sample size which gives you more of a chance to reject something in the first place.

Am i thinking of this in the right way? When i first did this i thought it was backwards but this is the only way their answer makes sense in my head.

[stoleway]

This is how I always think about this questions.

It was GOOD but it was rejected ( incorrect rejection)

It was BAD but it was accepted ( incorrect acceptance)

Just think of it as a human behaviour, we tend to reject or deny GOOD employees during interview

And accept BAD employees during interview.

This is funny but if you use this rationale, you will be OK with this part of sampling

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[stoleway]

This is how I always think about this questions.

It was GOOD but it was rejected ( incorrect rejection)

It was BAD but it was accepted ( incorrect acceptance)

Just think of it as a human behaviour, we tend to reject or deny GOOD employees during interview

And accept BAD employees during interview.

This is funny but if you use this rationale, you will be OK with this part of sampling

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[kevinco]

The risk of incorrect rejection is the risk that the sample will support the conclusion that an amount is materially misstated when in reality it is not It relates to the efficiency of the audit. IF the amounts are not misstated, the performance of additional procedures (increasing sample size, or doing more work) will generally lead to the auditor making the right conclusion but will be inefficient because the auditor did not need to do the additional work if they didn't incorrectly reject the initial sample.

Therefore when the cost of increasing sample size is low, the auditor will be willing to accept more risk of incorrect rejection because doing more work is lower.

Hope this helps

Boise State Alumni

05/08/13 FAR Passed - 80
07/09/13 AUD Passed - 96
10/10/13 REG Passed - 75
11/07/13 BEC 77!!! I am DONE!!!!!!!!
12/13/2013 Received my CPA license on my son's 6th birthday in the mail! My son is always a blessing!!

BS - Environmental Science
BBA - Accountancy

Becker Lectures and MCQs. Click on my avatar for my LinkedIn page.

[kevinco]

The risk of incorrect rejection is the risk that the sample will support the conclusion that an amount is materially misstated when in reality it is not It relates to the efficiency of the audit. IF the amounts are not misstated, the performance of additional procedures (increasing sample size, or doing more work) will generally lead to the auditor making the right conclusion but will be inefficient because the auditor did not need to do the additional work if they didn't incorrectly reject the initial sample.

Therefore when the cost of increasing sample size is low, the auditor will be willing to accept more risk of incorrect rejection because doing more work is lower.

Hope this helps

Boise State Alumni

05/08/13 FAR Passed - 80
07/09/13 AUD Passed - 96
10/10/13 REG Passed - 75
11/07/13 BEC 77!!! I am DONE!!!!!!!!
12/13/2013 Received my CPA license on my son's 6th birthday in the mail! My son is always a blessing!!

BS - Environmental Science
BBA - Accountancy

Becker Lectures and MCQs. Click on my avatar for my LinkedIn page.

[Author]

Replies