The risk of incorrect acceptance related to the
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Risk of incorrect rejection is the risk that the sample allows for the auditor to conclude that the financial statements are materially misstated, when in fact they are not. This will affect the efficiency of audit procedures. Show
 Previous Question Next Question Back To All Questions Risk of incorrect acceptance is the risk that the sample allows the auditor to conclude that financial statements are not materially misstated, when in fact they actually are. This will affect the effectiveness of the audit detecting existing material misstatements. Risk of incorrect acceptance is the risk that the sample allows the auditor to conclude that financial statements are not materially misstated, when in fact they actually are. This will affect the effectiveness of the audit detecting existing material misstatements. Previous Question Next Question Back To All Questions If you would like to use the Excel workbook that was used to create the Universal CPA lecture on CECL for debt securities, please click the link below to download the Excel workbook: CECL Calculation workbook (Universal CPA Review) Read More Journal Entry for Direct Materials Variance In the current year, Mission Burrito budgeted 6,000 pounds of production and actually used 4,000 pounds. Material cost was budgeted for $5 per pound and the actual cost was $8 per pound. What would the debit or credit to the direct material efficiency variance account be for the current... Read More Variance Analysis Variance analysis is a method for companies to compare its actual performance vs its budgeted amount for that cost measurement (related to the flexible budget). The differences between the standard (budgeted) amount of cost and the actual amount that the organization incurs is referred to as a variance. By analyzing variances, the company... 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 samples used in various audit tests, though doing so increases the cost of the audit. Thus, the auditor needs to balance a potential reduction in the risk of incorrect acceptance against spending too much to conduct an audit. |
