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In: Accounting

Which of the following statements is true of the tolerable rate of deviation? a. It is...

Which of the following statements is true of the tolerable rate of deviation?

a. It is a rate of deviation set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set is not exceeded by the actual rate of deviation in the population.
b. This term is sometimes referred to as the tolerable failure rate.
c. The auditor's tolerable rate of deviation is the level at which the control's failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor's planned assessment of control risk in performing tests of account balances.

d. All of these statements are true.

An example of an attribute of interest to an auditor would be evidence that the client has matched vendor invoice details with the purchase order and receiving report before payment approval and noted that they match before authorizing a payment for the goods received.

a. True
b. False

One example of the circumstances in which the auditor might use MUS includes accounts receivable confirmations when credit balances are not significant.

a. True
b. False

When the total estimated misstatement exceeds the tolerable misstatement, the auditor has available several possible courses of action. Two of the options are expanding the sample or changing the audit objective to estimating the correct value.

a. True
b. False

Which statement is false regarding the use of sampling and data analytics tools by auditors?

a. Auditors use sampling in testing account balances and assertions.
b. Sampling involves looking at all of the transactions that occurred during the period under audit.
c. Auditors use sampling in testing controls.
d. Sampling techniques would be appropriate when an auditor wants to perform procedures such as examining documents, reperforming calculations, or sending confirmations.

Solutions

Expert Solution

Answer for 1: Option A - It is a rate of deviation set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set is not exceeded by the actual rate of deviation in the population.

Explanation: It is the rate set by the Auditor upto which if the control fails, the auditor takes an assurance that the control operated effectively during the audit period. For example, if the tolerable rate is 5%, and if the control failure occured for upto 5% as per his testing, then the auditor will conclude the control as pass.

Answer for 2: Option A - True

Explanation: This is a basic test that the auditors implement to ensure that the payment to the vendor is not released in excess of the value of goods received against the purchase order.

Answer for 3: Option A - True

Explanation: Auditors use the Monetary unit sampling (MUS) method for getting the balance confirmations for accounts receivables.

Answer for 4: Option A - True

Explanation: the auditor employs additional tests if the errors exceed the tolerable rate of deviation.

Answer for 5: Option D -  Sampling techniques would be appropriate when an auditor wants to perform procedures such as examining documents, reperforming calculations, or sending confirmations.

Explanation: the auditors use sampling techniques for testing which involves large populations of transactions.

ekkarill92 answered 2 years ago
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