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

question 28

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%. The allowance for sampling risk was

• A) 5.5%.
• B) 4.5%.
• C) 3.5%.
• D) 1%.

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Definitions:

Cash Flow Statements

Financial statements that record the cash inflows and outflows for a company over a specific period of time.

Noncash Investing

A type of investing activity that involves transactions not involving cash, such as property or stock trades.

Financing Activity

Transactions related to raising or repaying capital, including debt, equity, and dividends payments, reported in the cash flow statement.

Investing Activity

Transactions involving the purchase or sale of long-term assets and investments, not relating directly to the entity’s primary business activities.