In Order for the Auditor to Decide to Perform Tests

question 76

Multiple Choice

In order for the auditor to decide to perform tests of controls,which of the following relationships should exist?

• A)The sampling risk should be less than 5%.
• B)The tolerable rate of deviation should exceed the expected population deviation rate.
• C)The expected population deviation rate should exceed the risk of overreliance.
• D)The expected population deviation rate should exceed the tolerable rate of deviation.

---

Definitions:

Product Warranty Payable

A liability account that records the estimated amounts a company expects to pay for warranties on products it has sold.

Product Warranty Expense

Costs associated with the repair or replacement of faulty products that have been sold, under the terms of a product warranty.

Estimated Product

A provisional evaluation or calculation of a product's potential production costs, sales value, or impact on the market.

Warranty Expense

Costs associated with the commitment to repair or replace a product if it fails within a specified period.