Based on a 5% Risk of Assessing Control Risk Too

question 34

Multiple Choice

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 accept 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%.

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Definitions:

Net Present Value

A financial metric used to evaluate the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows over a period of time.

Uncovered Interest Rate Parity

A financial theory stating that the difference in interest rates between two countries will be equal to the expected change in exchange rates between their currencies.

Arbitrage Opportunity

A situation where a trader can profit from price differences of the same asset in different markets, buying low in one and selling high in another.