Holding other planning considerations equal, a decrease in the amount of misstatement in a class of transactions the auditor could tolerate most likely would cause the auditor to

Holding other planning considerations equal, a decrease in the amount of misstatement in a class of transactions the auditor could tolerate most likely would cause the auditor to

• A. the planned substantive tests prior to the balance sheet date
• B. Perform the planned auditing procedures close to the balance sheet date
• C. increase the assessed level of control risk for relevant financial statement assertions
• D. decrease the extent of auditing procedures to be applied to the class of transactions

Answer: (B)

Lowering the amount of misstatement you can tolerate tightens the evidence requirements. Tolerable misstatement is the maximum misstatement you’re willing to accept in a class of transactions without affecting the overall fairness of the financial statements. When this threshold shrinks, you need more persuasive, reliable evidence, and you want it to reflect the most relevant, up-to-date information. Testing planned procedures closer to the balance sheet date provides this timely evidence and reduces the risk that later events or changes after the test date could alter conclusions. Testing before year-end would give less current information, increasing the risk that the evidence doesn’t reflect near-period conditions. Increasing control risk isn’t the direct response to a tighter misstatement tolerance in this context, and decreasing the extent of procedures runs contrary to the need for stronger evidence.

Lowering the amount of misstatement you can tolerate tightens the evidence requirements. Tolerable misstatement is the maximum misstatement you’re willing to accept in a class of transactions without affecting the overall fairness of the financial statements. When this threshold shrinks, you need more persuasive, reliable evidence, and you want it to reflect the most relevant, up-to-date information. Testing planned procedures closer to the balance sheet date provides this timely evidence and reduces the risk that later events or changes after the test date could alter conclusions.

Testing before year-end would give less current information, increasing the risk that the evidence doesn’t reflect near-period conditions. Increasing control risk isn’t the direct response to a tighter misstatement tolerance in this context, and decreasing the extent of procedures runs contrary to the need for stronger evidence.