As a result of tests of controls, an auditor under assessed control risk and decreased substantive testing. This underassessment occurred because the true occurrence rate in the population was

• A. Less than the risk of underassessment in the auditor's sample.
• B. Less than the occurrence rate in the auditor's sample.
• C. More than the risk of underassessment in the auditor's sample.
• D. More than the occurrence rate in the auditor's sample.

Answer: (D)

When you test controls and decide how much to rely on them, you base your assessment on how often controls fail across the population. If the true occurrence rate in the population is higher than what you observed in your sample, you would be underestimating how often controls fail. That leads to underestimating control risk and, as a result, reducing substantive testing more than is warranted.

So the correct idea is that the true population occurrence rate was higher than the occurrence rate seen in the auditor’s sample. This mismatch explains why control risk was underassessed and substantive testing was reduced.