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STATEMENT 1:
If TOTAL estimated misstatement exceeds tolerable misstatement,
i.e. projected + anomalous misstatements exceed tolerable misstatement,
–> the sample does not provide a reasonable basis for conclusions about the population.
QUESTION: Why is this so? Doesn’t this simply show how extremely erroneous the population possibly is?STATEMENT 2:
“The closer the total estimated misstatement is to tolerable misstatement, the more likely it is that actual misstatement in the population could exceed tolerable misstatement.”
QUESTION: By ‘closer’ do they mean higher or lower than tolerable misstatement. Could someone explain the entire stmt please and why it is more likely?Thanks for any assistance.
Q1: Tolerable misstatement is the maximum misstatement in the sample you would permit before concluding that there was a reasonable chance of a material misstatement in the population. So, if estimated misstatement > tolerable misstatement, you have no statistical evidence that can be safely applied to the population.
Q2: If tolerable misstatement in the sample = 1,000 and estimated = 999, there is an excellent chance that the actual misstatement in the population will exceed the tolerable misstatement in the population. Similarly, if tolerable = 1000 and estimated = 2,000.
If tolerable misstatement in the sample = 1,000 and estimated misstatement = 50, there is only a small chance that the actual misstatement in the population will exceed the tolerable misstatement in the population.
For your response to Q1, you said,
“you have no statistical evidence that can be applied safely to the population”
Do you mean that all evidence possessed becomes unusable as audit evidence??
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