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What is a representative sample? How does the confidence level relate to sampling? What are the risks of over-reliance and under-reliance (for tests of controls)? What factors affect sample size? What is stratification and why is it used? How do you evaluate the results of a control test sample? When is 100% testing or specific-item selection used instead of sampling? How does reliance on internal controls affect substantive sample sizes? What is monetary unit sampling (MUS) and when is it used? How do you project (extrapolate) misstatements from a sample?
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Auditing & Assurance › Audit Sampling

What is tolerable misstatement and tolerable rate of deviation?

Intermediate

Answer

Tolerable misstatement is the maximum misstatement in a population the auditor will accept in substantive testing (usually set at or below performance materiality). Tolerable rate of deviation is the maximum rate of control failures the auditor will accept while still relying on the control. Both set the threshold against which sample results are evaluated.
Real-world example With tolerable misstatement of $75,000, a projected sample error of $30,000 is acceptable, whereas $90,000 would not be.

Common follow-ups: How does tolerable misstatement relate to materiality? | What does the tolerable deviation rate govern?

Audit Risk & Materiality Internal Controls Evaluation Audit Sampling
All 18 Audit Sampling questions