When the Computed Upper Deviation Rate Is Greater Than the Tolerable

question 142

Multiple Choice

When the computed upper deviation rate is greater than the tolerable deviation rate, it is necessary for the auditor to take specific action.Which of the following courses of action would be most difficult to defend if the auditor is ever subject to review by a court?

• A) Write a letter to management.
• B) Expand the sample size.
• C) Revise the assessed control risk.
• D) Revise and relax the tolerable deviation rate (TDR) or the acceptable risk of assessing control risk too low (ARO).

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Definitions:

Elastic Supply

A situation where the quantity supplied changes significantly in response to changes in price.

Elastic Demand

A situation where the demand for a product or service significantly changes in response to a change in price.

Inelastic Supply

A situation where the quantity supplied of a good is not significantly affected by a change in price.

Elastic Demand

A market condition where the demand for a product is sensitive to price changes, meaning that a small change in price results in a large change in the quantity demanded.