How does a larger sample size affect the risk of assessing control risk too low?

A larger sample size decreases the risk of assessing control risk too low. This is because a larger sample provides a more accurate representation of the population being tested. When auditors evaluate internal controls, they aim to assess whether those controls are operating effectively. If only a small sample is tested, there is a higher chance that the sample may not capture instances of control failure, leading to an incorrect conclusion that controls are functioning well.

In contrast, by increasing the sample size, auditors are more likely to identify any deviations or weaknesses within the controls, which allows for a more reliable assessment. Consequently, the auditor can form a more confident opinion about the effectiveness of the controls, thereby lowering the likelihood of an inappropriate assessment of control risk. This is crucial in ensuring that the financial statements are not materially misstated due to ineffective controls.

A small sample size, on the other hand, can lead to an overstated assessment of control effectiveness, increasing the risk of issuing an unqualified opinion when the controls might not be functioning as intended.