An internal auditor is performing testing to gather evidence regarding an organization’s inventory account balance and is mindful of the possibility that the sample used might support the conclusion that the recorded account balance is not materially misstated when, in fact, it is. The auditor's concern best describes which of the following risks?

The scenario describes the risk of incorrect acceptance, also known as Type II or beta risk. This is a type of sampling risk where the sample results lead an internal auditor to conclude that a recorded balance is not materially misstated when, in fact, it is. This risk is critical because it impairs the effectiveness of the audit, potentially causing the audit team to fail to identify a significant issue. The auditor incorrectly accepts the population (the inventory account balance) as being fairly stated.

A. incorrect rejection risk: This is the opposite risk (Type I or alpha risk), where a sample leads the auditor to conclude an account is materially misstated when it is not.
C. Tolerable misstatement risk: Tolerable misstatement is the maximum error an auditor is willing to accept in a population. It is a planning concept for materiality, not a type of sampling risk.
D. Anticipated misstatement risk: Also known as expected misstatement, this is the auditor's estimate of error in the population before sampling begins. It is an input for determining sample size, not a sampling risk.

1. The Institute of Internal Auditors (IIA). (2017). Practice Guide: Audit Sampling.

Page 11, Section: "Sampling Risk": "The risk of incorrect acceptance (beta or Type II risk) is the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when it is materially misstated." This directly defines the situation described in the question.

2. Arens, A. A., Elder, R. J., & Beasley, M. S. (2020). Auditing and Assurance Services: An Integrated Approach (17th ed.). Pearson.

Chapter 15, Page 503, "Risks of Incorrect Acceptance and Incorrect Rejection": The text defines the risk of incorrect acceptance (RIA) as "the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when it is materially misstated." It further explains that RIA is a serious concern because it results in audit failure.

3. DeFond, M. (n.d.). Audit Sampling. Courseware from the Leventhal School of Accounting, University of Southern California.

Lecture Notes, Module on Audit Sampling: In discussions of sampling for substantive tests, the risk of incorrect acceptance is defined as the risk of concluding the book value is acceptable when it is materially misstated. This risk is contrasted with the risk of incorrect rejection, which affects audit efficiency rather than effectiveness.