How Does the Auditor Establish the Level of Tolerable Misstatement

Multiple Choice

How does the auditor establish the level of tolerable misstatement in a variables sampling application?

A) Based on prior assessments of audit risk,risk of material misstatement,and analytical procedures risk.
B) Based on the recorded amount of the account balance as well as the relationship of the account balance with important financial statement subtotals.
C) Based on the findings in prior audits or based on a small sample taken during the current year.
D) Based on the anticipated cost of conducting additional substantive procedures.