The Tolerable Deviation Rate for Tests of Controls Necessary to Justify

question 36

Multiple Choice

The tolerable deviation rate for tests of controls necessary to justify assessing control risk at less than maximum depends primarily on which of the following?

• A) The assessed level of control risk.
• B) The cause of deviations.
• C) The tolerable deviation rate used in audits of similar clients.
• D) The amount of any identified substantive misstatements.

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Definitions:

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specified time period.

Callable Bonds

Bonds that give the issuer the right but not the obligation to redeem the bonds before their maturity date, usually at a predefined call price.

Bond Issuer

A bond issuer is an entity, such as a corporation, government, or municipality, that raises funds by issuing bonds to investors, in return for borrowing money over a specified period at an agreed interest rate.

Promissory Notes

Written, legally binding promises to pay a specified sum of money at a defined future date.