The Audit Team Is Planning to Examine a Sample of Control

question 68

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,based on past audits,estimates the expected population deviation rate to be 2%.Initially,the audit team was planning for a moderate degree of reliance on internal control and established a tolerable rate of deviation of 7%; however,it is considering increasing its reliance on internal control and reducing the tolerable rate of deviation to 4%.Which of the following is not true with respect to the impact of the reduction in the tolerable rate of deviation on sample size?

• A)The reduction in the tolerable rate of deviation would result in a smaller sample size.
• B)The audit team would likely not seek a reduction in the tolerable rate of deviation unless it could obtain a reduction in its substantive testing.
• C)The resultant sample size assuming the reduction in the tolerable rate of deviation would be 294 items.
• D)The reduction in the tolerable rate of deviation would result in the audit team examining an additional 206 items.

---

Definitions:

Static Budget

A fixed budget based on a specific level of activity and does not change with the actual level of activity.

Favorable Differences

Variations between budgeted and actual figures that are advantageous to the company, indicating better performance or savings.

Unfavorable Differences

Variances that occur when actual costs are higher than the budgeted or standard costs, often considered as negative variances.

Relevant Range

The range of the activity index over which the company expects to operate during the year.