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

question 60

Multiple Choice

An auditor wanted to test credit approval on 10,000 sales invoices processed during the year.The auditor designed a statistical sample that would provide a 1% risk of overreliance (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 limit rate of deviation to be 8%. In evaluating this sample,the auditor decided to increase the level of the preliminary assessment of control risk because the

• A) tolerable rate of deviation (7%) was less than the upper limit rate of deviation (8%).
• B) expected population deviation rate (7%) was more than the percentage of errors in the sample (3.5%).
• C) expected population deviation rate (2.5%) was less than the tolerable rate of deviation.
• D) upper limit rate of deviation (8%) was more than the percentage of errors in the sample (3.5%).

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Definitions:

Poverty

The state of having insufficient financial resources to meet basic living needs such as food, shelter, and healthcare, leading to a lower quality of life.

Wage Earners

Individuals who receive a regular salary or wages based on the amount of work done, often reflecting a segment of the workforce not receiving salaries from long-term contracts or owning businesses.

Great Britain

An island nation in northwest Europe, consisting of England, Scotland, and Wales, known for its influential role in global politics, economics, and culture.

English Governance

The system of political and administrative organization used in England, characterized by its constitutional monarchy and parliamentary democracy.