Tolerable Misstatement vs Expected Misstatement in Audit Sampling
These two inputs affect sample planning in different directions.
Tolerable misstatement
Tolerable misstatement is the maximum error the auditor is willing to accept for the sampling application.
Expected misstatement
Expected misstatement is the amount of error the auditor anticipates based on prior results and current conditions.
Sample-size effect
Lower tolerable misstatement or higher expected misstatement generally pushes sample size upward.
Exam strategy
Think tolerance equals allowable error; expected equals anticipated error.
The takeaway
Lower tolerance and higher expected error generally require more audit work.
Related Summit resources
FAQ
What is the core idea?
Lower tolerance and higher expected error generally require more audit work.
What should you identify first?
These two inputs affect sample planning in different directions.
Why does this matter on the CPA Exam?
Separate how much error the auditor can tolerate from how much error the auditor expects to find.