In a statistical sampling application for substantive testing (Variables Sampling), the auditor calculates a point estimate of the population misstatement. If the point estimate plus the allowance for sampling risk exceeds the tolerable misstatement, the auditor should:

Answer options:

Accept the book value as fairly stated.

Conclude that the account balance is materially misstated.

Decrease the sample size.

Request management to book the point estimate as an adjustment.

How to approach this question

Sampling Logic: Upper Limit (Estimate + Allowance) > Tolerable = Reject.

Full Answer

B.Conclude that the account balance is materially misstated.✓ Correct

If the upper limit of the misstatement (Point Estimate + Allowance) exceeds Tolerable Misstatement, there is an unacceptably high risk that the balance is materially misstated. The auditor cannot accept the account as fairly stated.

Common mistakes

Accepting the account because the Point Estimate alone might be below Tolerable (ignoring the allowance/margin of error).

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