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Calculate the maximum allowable risk of incorrect acceptance

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Question - The auditors of Willington Electronics want to limit the risk of material misstatement in the valuation of inventories to 2%. They believe that there is a 50% risk that a material misstatement could have bypassed the client's internal controls and that the inherent risk of the account is 80%. They also believe that the substantive analytical procedures performed to test have a 40% risk of failing to detect a material misstatement.

Required -

a. Calculate the maximum allowable risk of incorrect acceptance by the substantive tests of the detail transactions.

b. What level of detection risk is implicit in this problem?

Reference no: EM133062717

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