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.

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Definitions:

Average Total Assets

The mean value of all the assets owned by a company over a specific time period.

Return on Total Assets

A financial ratio that measures the efficiency of a company's use of its assets to generate profit, calculated by dividing net income by total assets.

Available-for-sale Securities

Financial assets that are not classified as held-to-maturity or trading securities, and can be sold in the market.