AICPA Exam CPA-Auditing Topic 1 Question 81 Discussion

Choice 'c' is correct. Tolerable misstatement is the maximum monetary misstatement in an account balance that may exist without causing the financial statements to be materially misstateD. Tolerable misstatement is a planning concept related to the auditor's preliminary judgments about materiality levels.

Choice 'a' is incorrect. The auditor's overall business risk is not related to the tolerable misstatement used in planning a sample for a substantive test of details.

Choice 'b' is incorrect. The tolerable misstatement should be adjusted for both qualitative and quantitative factors.

Choice 'd' is incorrect. The auditor should modify his or her consideration of tolerable misstatement if, during the audit process, information used to determine the initial level of tolerable misstatement changes.