In short
Tolerable misstatement is the amount of misstatement in a population that the auditor will accept while still concluding the population is fairly stated. It is set at or below performance materiality.
Key takeaways
- The lower the tolerable misstatement, the larger the sample needed.
- Projected misstatement plus an allowance for sampling risk is compared with it.
- In tests of controls, the equivalent idea is the tolerable rate of deviation.
Where it's tested
AUD: Audit Sampling — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a test of controls, the tolerable deviation rate is 5% and the computed upper deviation rate based on the sample is 6.2%. What should the auditor conclude?