What Is an Auditor's Evaluation of a Statistical Sample for Attributes

question 32

Multiple Choice

What is an auditor's evaluation of a statistical sample for attributes when a test of 100 documents results in four exceptions if the tolerable exception rate is 5%, the expected population exception rate is 3%, and the allowance for sampling risk is 2%?

• A) Accept the sample results as support for planned reliance on the control because the tolerable rate less the allowance for sampling risk equals the expected population exception rate.
• B) Modify planned reliance on the control because the sample exception rate plus the allowance for sampling risk exceeds the tolerable rate.
• C) Modify planned reliance on the control because the tolerable rate plus the allowance for sampling risk exceeds the expected population exception rate.
• D) Accept the sample results as support for planned reliance on the control because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.

Understand and calculate key financial ratios including liquidity, profitability, and debt management ratios.

Perform and interpret vertical and horizontal analyses of financial statements.

Analyze a company's performance through trend analysis.

Calculate and understand the significance of the current ratio, acid test ratio, and inventory turnover.

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Definitions:

Cost of Borrowing

The total amount of money that a borrower pays to secure a loan, including interest, fees, and any other charges.

Miller-Orr Model

A financial model that helps in managing cash flows and cash reserves of firms, focusing on maintaining an optimal balance level.

Interest Rate

The percentage charged on a loan or paid on deposits over a specific period, reflecting the cost of borrowing or the gain on savings.

Target Cash Balance

The ideal amount of cash that a company aims to hold to meet operational and transaction needs while minimizing holding costs.