Hi Everyone,
Could someone please help me understand this question?
Which of the following statements is correct concerning statistical sampling in tests of controls?
a. As the population size increases, the sample size should increase proportionately.
b. There is an inverse relationship between the expected population deviation rate and the sample size.
c. Deviations from specific control activities at a given rate ordinarily result in misstatements at a lower rate.
d. In determining tolerable rate, an auditor considers detection risk and the sample size.
Explanation
Choice “c” is correct. Deviations from control activities do not necessarily result in misstatements. Therefore, deviations from pertinent control activities at a given rate would ordinarily be expected to result in misstatements at a lower rate.
Choice “a” is incorrect. In tests of controls, population size has virtually no effect on sample size unless the population is small.
Choice “b” is incorrect. There is a direct relationship between expected deviation rate and sample size.
Choice “d” is incorrect. Detection risk and sample size are not factors in determining the tolerable deviation rate in a test of controls. The tolerable rate is simply the maximum rate that the auditor is willing to accept without altering his or her planned level of reliance.
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