A Type I error occurs when an auditor falsely concludes that the financial statements are fairly stated when, in fact, a material misstatement exists in the financial statements.
A Type I error occurs when an auditor concludes that the financial statements are fairly stated when, in fact, a material misstatement exists in the financial statements. This means that the auditor falsely rejects the null hypothesis that the financial statements are accurate. It is important for auditors to minimize Type I errors because they can lead to incorrect financial decisions based on inaccurate information.