When Performing the Substantive Tests on an Account Balance,the Auditor

question 43

Multiple Choice

When performing the substantive tests on an account balance,the auditor is concerned about two aspects of sampling-based decision errors: (1) the risk of incorrect rejection (RIR) and (2) the risk of incorrect acceptance (RIA) .Which of the following is true about RIR and RIA?

• A)RIR is of greater concern to the auditor than the RIA.
• B)RIA is of greater concern to the auditor than the RIR.
• C)RIA and the RIR are of equal importance to the auditor.
• D)Neither the RIR nor the RIA need be considered by the auditor.

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Definitions:

Variable Cost

Costs that adapt in response to modifications in business activity volume.

Fixed Cost Per Unit

The total fixed costs of production divided by the number of units produced, indicating how cost allocation changes with production volume.

Production Increases

The rise in the number of goods and services produced by a company or country, often indicative of economic growth.

Variable Costs

Costs that vary directly and proportionally with the level of production or sales volume, such as raw materials and direct labor costs.