[Anonymous]

Please help me understand why R.O.A.C.R.T.L has an inverse relationship with Sample size?

[raymondsfamily]

Pulled from another thread:

https://www.another71.com/cpa-exam-forum/topic/control-risk-vs-assessed-control-risk-level

“The risk of assessing control risk too low is your detection risk, not your control risk. That is why the relationship is inverse.”

The way I look at it is DR increased (due to lowered CR) will require a smaller sample size (less substantive testing)…I could be wrong though (given my lovely duece 70's 😉

F - 5/8/13 81
R - 74, 2/7/14 86
B - 74, 12/6/13 82
A - 70, 11/4/14 89!!!

I'm done 🙂 Many thanks to Jeff, A71 and Roger CPA!!!

MBA and CPA

[Anonymous]

Raymonds is right. When your control risk is low that signifies you can rely more on controls and consequently less substantive testing. As your control risk goes down (safer environment) your detection risk goes up due to you willing to accept more risk because of your reliance/faith on the controls. When you're willing to accept more risk, you don't need to sample as much to get assurance.

[Anonymous]

I see, C.R. too low is defined the same way as DR and therefore shares the same relationship. So that means C.R. too high has no bearing on Risk at all.

So, other than the efficiency of the audit, what does an analysis of setting C.R. too high determine?

[Anonymous]

The risk of setting C.R. too high or low is derived from your sample results. If you just so happened to select a sample that yielded an exception rate of something much higher than if you tested the entire population then that's when your C.R. is assessed too high. The leads to an ineffecient audit. You are going to perform more substantive procedures based on the results of your sample when you really just got a skewed result that is not truely representative of your population.

C.R too low would be the opposite. It relates to the ineffectiveness of an audit. You're not testing enough.

[Author]

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