Which of the following is an example of 'Sampling Risk' of the type that leads to an incorrect acceptance (Type II error)?

Answer options:

The auditor concludes that the account balance is materially misstated when, in fact, it is fairly stated.

The auditor concludes that the account balance is fairly stated when, in fact, it is materially misstated.

The auditor makes a mistake in the calculation of the sample size.

The auditor selects a sample that is not representative due to bias.

How to approach this question

Distinguish Type I (Efficiency/False Alarm) vs Type II (Effectiveness/Missed Error). Incorrect Acceptance = Missed the error.

Full Answer

B.The auditor concludes that the account balance is fairly stated when, in fact, it is materially misstated.✓ Correct

The auditor concludes that the account balance is fairly stated when, in fact, it is materially misstated.

The risk of incorrect acceptance is the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when, in fact, it is. This relates to the effectiveness of the audit.

Common mistakes

Confusing Incorrect Rejection (Efficiency) with Incorrect Acceptance (Effectiveness).

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