Identify and correct the errors in the following extract:

Risk of overreliance occurs when the sample does not support the preliminary level of control risk but the operating effectiveness of controls is actually adequate. The result is that the audit could be effective as the level of testing may be sufficient to detect material misstatements. Risk of underreliance occurs when the sample supports the preliminary assessed level of control risk but the operating effectiveness of controls is inadequate. The result is that the audit is inefficient as the auditor will reduce substantive procedures unnecessarily. Risk of incorrect acceptance occurs when the sample does not support the conclusion that the account balance is materially misstated when in fact it is. The result is that the audit could be effective as the level of testing may be sufficient to detect material misstatements.

Answer rating: 100% (QA)

Solution The auditors model to review and manage risks of an audit engagement is called the audit ri... View the full answer