[watswidme]

Can someone explain to me the relationship between tolerable rate and expected rate? and why tolerable rate is generally greater than expected deviation rate.

Thanks!

FAR 05/21/2011 - 88
BEC 05/23/2011 - 83
AUD 07/30/2011 - 87
REG 08/30/2011 - 84
CPA 04/24/2014 - DONE

[WhyMe23]

From my understanding Tolerable rate is the maximum deviation rate you would accept without changing your reliance on the control, the expected rate is the auditors best estimate.

Usually you need to compare the upper deviation rate (actual sample deviation rate + allowance for sampling risk) to the tolerable rate to determine whether the control is reliable. The only reason you need the expected rate is to determine your sample size (the more deviations you expect the greater the sample size needed).

This of course applies to attributes sampling (controls). Variable sampling (substantive) would be called tolerable Misstatement, not rate, and would be a dollar amount.

B - 85 (5/31/11)
A - 93 (7/1/11)
R - 87 (7/29/11)
F - 77 (8/31/11)

[watswidme]

I just got the answer from another MCQ 🙂

Tolerable Rate = Allowance for sampling risk+Expected Deviation Rate

Upper Deviation rate = Allowance for sampling risk+Actual Deviation Rate

I can't quite explain the logic of it but i somehow get it now through this formula its sort of like an “equivalent” between the preliminary assessment and the actual test of control.

If for example the opposite comes true TR<Expected deviation rate there will be no need of a test of control because you're expectation of error is greater than your tolerable then might as well do substantive testing! 🙂

FAR 05/21/2011 - 88
BEC 05/23/2011 - 83
AUD 07/30/2011 - 87
REG 08/30/2011 - 84
CPA 04/24/2014 - DONE

[Author]

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