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Assessing Control Risk and Upper Deviation

6.Based on a 5% risk of assessing control risk too low, how would an auditor interpret a computed upper deviation rate of 7%?
A)The auditor is willing to live with a deviation rate of 7% before deciding not to rely on the control.
B)There is a 5% chance that the deviation rate in the population is less than 7%.
C)There is a 5% chance that the deviation rate in the population exceeds 7%.
D)There is a 95% chance that the deviation rate in the population equals 7%.

Solution Preview

C.

Tolerable rate. The maximum population deviation rate the auditor is willing to accept without altering the planned assessed level of control risk. For example, a low (3-7%) rate might be used if substantial reliance on the control is planned. The tolerable rate is inversely related to sample size.

Risk of assessing control risk too low (RACRTL). The maximum risk the auditor is willing to accept of incorrectly concluding that the population deviation rate is less than or equal to the ...

Solution Summary

This solution identifies the correct answer and justifies why by defining and explaining the concepts of tolerable rate, risk of assessing control risk too low, and expected population deviation rate. References used are included.

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