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:

Decision Nodes

Points within a decision tree where the choice between different alternatives is made, leading to different outcomes or branches.

Decision Tree

A visual representation of the decision-making process, showing different possible outcomes based on a series of connected choices or events.

R&D Process

Stands for Research and Development Process, encompassing the activities companies undertake to innovate and introduce new products or services.

Rollback Value

A value or state to revert to, often used in the context of database transactions or undo functionality in software.