The Audit Team Is Planning to Examine a Sample of Control

question 81

Multiple Choice

The audit team is planning to examine a sample of control policies and procedures.Assume that,based on the intended degree of reliance on internal control,the audit team wishes to control the risk of overreliance to 5% and establishes a tolerable deviation rate of 8%.Based on past audits,the audit team would normally estimate the expected population deviation rate at 2%; however,because of improvements in the client's internal control,they now feel that a rate of 1.25% is appropriate.Which of the following is not true with respect to the impact of the reduction in the expected population deviation rate on sample size?

• A)The reduction in the expected population deviation rate would result in a smaller sample size.
• B)The audit team would likely need to have a reasonable justification for establishing a lower expected population deviation rate.
• C)The resultant sample size assuming the reduction in the expected population deviation rate would be 77 items.
• D)The reduction in the expected population deviation rate would result in the audit team examining 19 fewer items.

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Definitions:

Liquidity

The ability of an asset to be quickly converted into cash without significant loss in value, or a company's ability to meet its short-term obligations.

IFRS

International Financial Reporting Standards, a set of accounting guidelines providing a global framework for financial statements.

Commercial and Tax Law Approach

Pertains to the legal frameworks and interpretations that govern the conduct of businesses and the calculation of taxes.

Global Sources of Capital

Various international avenues and mechanisms through which businesses can secure funding for operations or expansion.