Final answer:
Option (A), When the tolerable misstatement increases, the sample size typically decreases because a larger threshold of error is acceptable, reducing the risk of material misstatement.
Step-by-step explanation:
Increases in the tolerable misstatement would have what effect on sample size? Understanding the relationship between tolerable misstatement and sample size is important in audit sampling, which is a concept in the field of accounting and auditing. If the tolerable misstatement increases, this means that the auditor is willing to accept a higher threshold of error in the financial statements.
As the tolerable misstatement rises, the auditor may assess that there is less risk of material misstatement. Consequently, this could lead to a decision that a smaller sample size is appropriate because each individual misstatement is less likely to be material to the financial statements as a whole. Thus, the correct answer to the question is: A. Decreases.