Risk of incorrect rejection definition

What is the Risk of Incorrect Rejection?

The risk of incorrect rejection arises when a sample indicates that there is a risk of material misstatement when this is not actually the case. This occurs when the items selected in a sample are not truly representative of the population being tested. It comes from the possibility that a sample selection might contain proportionately more or less of a misstatement or deviation than exists in the population as a whole.

An auditor encountering this issue will expand the sample size or engage in other testing, though doing so reduces the efficiency of the audit work. This risk is a particular concern when the cost or difficulty of obtaining additional audit evidence is high.

Related AccountingTools Courses

Guide to Audit Sampling

How to Conduct an Audit Engagement

The Audit Risk Model