An Auditor Desired to Test Credit Approval on 10,000 Sales

Multiple Choice

An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 1/2% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the upper deviation rate to be 8%. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the:

A) Tolerable rate (7%) was less than the upper deviation rate (8%) .
B) Expected deviation rate (7%) was more than the percentage of errors in the sample (3.5%) .
C) Upper deviation rate (8%) was more than the percentage of errors in the sample (3.5%) .
D) Expected deviation rate (2.5%) was less than the tolerable rate (7%) .