What would most appropriately describe the risk of incorrect rejection in terms of substantive testing?
Correct answer: B. The auditor concludes that the balance is materially misstated when in actual fact it not
- A. The auditor concludes balance is materially correct when in actual fact it is not
- B. The auditor concludes that the balance is materially misstated when in actual fact it not
- C. The auditor has rejected an item for sample which was material
- D. None of the above
Explanation
Incorrect rejection occurs when the auditor rejects a population or balance as materially misstated even though it is actually materially correct. Incorrect acceptance is the opposite error described in option a.
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Auditing examines accounting records and financial statements to determine whether they present a reliable and fairly stated position. The subject covers audit objectives, internal controls, audit evidence, materiality, vouching, verification, working papers, auditor independence, audit reports, and the distinction between an audit and accounting or investigation.
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