An Auditor Desired to Test Credit Approval on 10,000 Sales

question 147

Multiple Choice

An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the upper deviation rate to be 8%. The allowance for sampling risk was:

• A) 5.5%
• B) 4.5%
• C) 3.5%
• D) 1%

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Definitions:

Knowledge Transfer

The process through which skills, knowledge, and expertise are passed from one person or part of an organization to another.

Organizational Pyramid

A hierarchical structure in an organization that illustrates levels of management and division of responsibilities, from the highest level of leadership to the lowest.

Fewer Layers

A reference to organizational structures with reduced levels of management, aiming for quicker decision-making processes and increased agility.

Greater Emphasis on Teams

An organizational focus that prioritizes team-based approaches and collaborative efforts among employees to achieve business objectives.