Question

The likelihood of assessing control risk too high is the risk that the sample selected to test controls ________.

1) does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment.
2) contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes.
3) contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole.
4) does not support the tolerable misstatement for some or all of management's assertions.

Answer 1

The likelihood of assessing control risk too high is the risk that an auditor's sample leads to an incorrect conclusion about the effectiveness of internal controls, suggesting more audit procedures than necessary. The correct answer from the provided options is that the sample does not support the auditor's planned assessed level of control risk when the actual control effectiveness justifies it. Audit sampling is crucial to making accurate risk assessments based on representative samples.

Step-by-step explanation:

The likelihood of assessing control risk too high is the risk that the sample selected to test controls does not support the auditor's planned assessed level of control risk when the true operating effectiveness of the internal control justifies such an assessment. This is an essential concept in audit sampling where auditors seek to make inferences about an entire population based on a sample. If an auditor overestimates the control risk, they may perform unnecessary additional audit procedures, thereby increasing the audit cost and effort without any proportional benefit.

In the provided options, the correct answer is 1) "does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment." This outcome occurs when an auditor's sample suggests that controls are not operating effectively, leading to an assessment of high control risk, even though, in actuality, the controls are operating effectively at a level that warrants a lower risk assessment.

Regarding statistical tests and experimental controls mentioned in the reference information, they are tools that help ensure that results are due to the tested variables rather than other factors. They emphasize the importance of examining belief systems and the critique of subjective statistical practices such as the arbitrary threshold for statistical 'significance' that may not reflect true effects. However, these statistical aspects are only tangentially related to the question of audit sampling related to assessing control risk.