[Pete]

For one of the answer solutions on the Becker software, it states that XYZ is the correct answer because “A lower risk of incorrect acceptance requires a greater sample size.” Is this solution correct or is this an error in the software?

From a logical perspective, this makes NO SENSE. How can something, which has a lower risk of being wrong, require a greater sample size?

It seems like the whole set is wrong, since they keep emphasizing that this “lower risk of incorrect acceptance” requires a larger samples size, but I just don’t understand WHY… maybe it’s just ambiguous wording.

B=84 This exam was such a b**** that I thought I failed-don't know how these things work
A=76 Slacker I am, I'll happily take it
R=81 I LOVE taxes
F=80 I don't wanna get banned for an expletive I'm thinking with "yea" proceeding it

[choffner]

Without seeing the entire question, and going off the top of my head…
If the risk of incorrect acceptance is 10%, but I desire a lower risk, say 5%, I have to use a greater sample size. Using a greater sample size lessens the chance of missing key data that would change my opinion.

If the population size is 100, and my sample is 10…there are 90 pieces of data that could harbor the “bad” data. If I increase my sample to 30, now there are only 70 places for the “bad” data to hide, so my sample is larger and the risk is lower.

Does that make sense?

BEC 75
REG 81
FAR 69, 75
AUD 71, 74, 84

[Biff-1955-Tannen]

If what @choffner is saying about what the question is asking, then that makes sense. If they are trying to get a lowER risk of incorrect acceptance.
The wording of the question is weird though, and makes it seem like its saying an already low risk (not trying to get lower), requires a greater sample size than if you had a higher risk.

AUD - 93
BEC - 83
FAR - 83
REG - 84

Nobody calls me chicken

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Bnots]

It's actually very much like detection risk in the audit risk equation, where you're actually determining the timing/nature/extent of substantive testing to achieve the desired level of audit risk. If I want a lower level of audit risk for a given IRxCR, my substantive testing has to be more rigorous.

Here, you're determining the sample size of your test to achieve the desired level of risk of incorrect acceptance. If I want a lower level of risk of incorrect acceptance, my sampling has to be more rigorous (i.e. greater sample size).

[Pete]

Oh ok, that makes a lot of sense. Basically, for this problem, for some damn reason, the audit partner was “reviewing” a bunch of case studies; under one column it had “Risk of incorrect acceptance” and for that case it stated “lower.” I thought they meant the ACTUAL risk was lower, not ALLOWABLE risk being lower.

For questions like this, where they state the “risk of incorrect acceptance” being lower, should i generally assume they mean “ALLOWABLE risk of incorrect acceptance?” Do you think something would be this ambiguous on the actual audit exam?

I have my test on Monday, but from what i've seen in the past, the actual exam is much more straightforward.

B=84 This exam was such a b**** that I thought I failed-don't know how these things work
A=76 Slacker I am, I'll happily take it
R=81 I LOVE taxes
F=80 I don't wanna get banned for an expletive I'm thinking with "yea" proceeding it

[EuroAddict]

Get to know your inverse vs. direct relationships. Sometimes the wording of the Q can be tricky.

-----------------------------
BEC - 77, 03/2015 (first try)
FAR - 79, 05/2015 (second try)
REG - 83, 12/2015 (first try)
AUD - 84, 03/2015 (first try)

I got 99 problems but the CPA ain't one.

[kaydun]

@Raftus I'm not sure what you mean by “allowable,” but if you ever get stuck, just think about what incorrect acceptance means.

If you know what it means (the risk of accepting a balance/FS/etc. when in fact it is materially misstated), then think logically what you could do to reduce that risk. The logical thing to do would to look at more samples, because that increases the chance of spotting a material misstatement and/or covers more ground to give you more confidence.

FAR - 76 Oct 2015 (Becker)
REG - 87 Apr 2016 (Becker + Ninja MCQ) - 3rd time's the charm!
AUD - 82 Feb 2016 (Becker)
BEC - 85 May 2016 (Becker)

[Pete]

By “allowable” i meant that it's the lowest risk the auditor WILL ALLOW, not the actual risk the auditor believes the sample to contain. I thought they meant the ACTUAL risk of incorrectly accepting the clients records, when in fact they were wrong.

B=84 This exam was such a b**** that I thought I failed-don't know how these things work
A=76 Slacker I am, I'll happily take it
R=81 I LOVE taxes
F=80 I don't wanna get banned for an expletive I'm thinking with "yea" proceeding it

[Bnots]

You can certainly mathematically determine the ACTUAL risk of incorrect acceptance for your sample size. The larger the sample size, the smaller the risk of incorrect acceptance for a given population. The issue is that it doesn't mean anything to say “A population has a risk of incorrect acceptance of.” If we sampled the entire population, the risk of incorrect acceptance would be zero. The risk of incorrect acceptance is itself a function of the sample size.

However, in practice, we're not really trying to figure out the value of the risk of incorrect acceptance for our test. We don't care if it's specifically 2.3% 4.8%, or 11.3%. Rather, we're selecting a level of risk of incorrect acceptance we are willing to allow (say, 5% or 10%), and using that to determine the sample size. So yes, in that sense it is the allowable risk. If our allowable risk is lower, the sample size must be larger.

[Author]

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