CPA Study Group
i’m not really sure why tolerable exception rate is inversely related to sample size…
Lets say for example:
Population of 100 invoices
A) Our tolerable exception rate is 5%. The max amount of misstatements we can accept wile providing an unmodified opinon is 5
B) Our tolerable exception rate is 2%. The max misstatements we’ll accept is 2.
Since our tolerable exception rate decreased, shouldn’t our sample size? It would make more sense to test less things when accepting less misstatements… Or it would have no effect
Anyone want to help me out on what I am missing here… Thanks!
Try thinking about it this way, more conceptually: if the tolerable exception rate is set lower, that means we really want to be sure about what we are testing. Therefore, that goes along with drawing a higher sample size in order to make sure we are drawing the right conclusions. If the tolerable rate is higher, we can afford to decrease our sample size because we don’t need to be as careful.
Anyways, I think your numbers based on the percentages (5% x 100 = 5) would change based on the sample size. I am thinking they would be determined by the sample size, not the population, since you’re not testing the entire population.