Calculate an acceptable risk of incorrect acceptance assuming: (1) audit risk is 5 percent, (2) the risk

Question:

Calculate an acceptable risk of incorrect acceptance assuming: (1) audit risk is 5 percent, (2) the risk that the internal controls fail to detect material errors is 40 percent, and (3) the risk that analytical procedures fail to detect material errors not detected by the internal controls is 50 percent.

a. .04.

b. .16.

c. .25.

d. Indeterminate.

Choose the correct answer.

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