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What is meant by acceptable risk of incorrect acceptance. Also, what are the major audit factors affecting ARIA?

What is meant by acceptable risk of incorrect acceptance. Also, what are the major audit factors affecting ARIA?

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Asked by Radburn, Last updated: Nov 09, 2024

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Acceptable risk of incorrect acceptance (aria) is the risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than tolerable misstatement.

Aria is the equivalent term to acceptable risk of assessing control risk too low for audit sampling for tests of controls and substantive tests of transactions. The primary factor affecting the auditors decision about aria is control risk in the audit risk model, which is the extent to which the auditor relies on internal controls.

When internal controls are effective, control risk can be reduced, which permits the auditor to increase aria, which in turn reduces the required sample size. Besides control risk, aria is also affected directly by acceptable audit risk and inversely by inherent risk and other substantive tests already performed on the account balance, assuming effective results. For example, if acceptable audit risk is reduced, aria must also be reduced. If analytical procedures were performed and there is no indication of problem areas, there is a lower likelihood of misstatements in the account being tested, and aria can be increased.

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