Question

Sampling Risks

The two (2) types of sampling risks auditors face include the risk of incorrect acceptance and the risk of incorrect rejection. What do each of these mean and how will each impact the audit process and the audit results? Which do you consider the more important risk?

Answer 1

Risk of incorrect acceptance :
The risk of incorrect acceptance is a situation in which the results of an audit sample support a conclusion that an account balance is correct, when this is not really the case. Instead, the account balance is materially incorrect. The outcome could be that the auditor conducting the test issues an incorrect opinion regarding a client's financial statements. The risk of incorrect acceptance can be reduced by increasing the size of the sample

Risk of incorrect rejection:
The risk of incorrect rejection arises when a sample indicates that there is a risk of material misstatement when this is not actually the case. An auditor encountering this issue will expand the sample size or engage in other testing, though doing so reduces the efficiency of the audit work. This risk is a particular concern when the cost or difficulty of obtaining additional audit evidence is high
Risk of incorrect acceptance is important than risk of incorrect rejection.