When Testing Controls, the Tolerable Error Is

question 36

Multiple Choice

When testing controls, the tolerable error is

• A) the tolerable rate of deviation that an auditor will accept before concluding that a control is effective.
• B) the minimum rate of deviation that an auditor will accept.
• C) the tolerable rate of deviation that an auditor will accept before concluding that a control is ineffective.
• D) the maximum amount of error in an account balance that an auditor will accept before concluding that an account is materially misstated.

---

Definitions:

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are expected to generate the most profit or benefit to the organization over time.

Cost of Equity Financing

The return that investors expect for providing capital to a company, often regarded as the riskiest form of financing.

Cost of Equity

The yield a business seeks to determine whether an investment satisfies the criteria for capital returns, frequently employed in evaluating the expense of financing initiatives.

Financial Models

Quantitative tools built to represent the performance of a financial asset or portfolio, often used for forecasting and decision making.