Question

What would most effectively describe the risk of incorrect acceptance in terms of substantive audit testing?

• A. The auditor has ascertained that the balance is materially correct when in actual fact it is not
• B. The auditor concludes the balance is materially misstated when in actual fact is not
• C. The auditor has rejected an item from sample which was not supported by documentary evidence
• D. He applies random sampling on data which is inaccurate and inconsistent

Answer 1

Answer: (A)

The auditor has ascertained that the balance is materially correct when in actual fact it is not

Substantive audit procedures are carried out by the auditor to check if there are any material misstatements in the accounting transactions.

Hence, in the given question, auditor is required to ascertain that the balance is materially correct and the risk of incorrect acceptance needs to be eliminated by confirming with the actual information.