unit 2 exam

In monetary-unit sampling with a sampling interval of $15,000, an auditor discovered that a selected inventory item with a recorded amount of $5,000 had an audited amount of $3,500. If this were the only misstatement discovered by the auditor, the projected misstatement of this sample would be $5,000. $6,428. $1,500. $4,500.

$4,500.

Assessing control risk below high involves all of the following: concluding that controls are ineffective. performing tests of controls. identifying specific controls to rely on. analyzing the achieved level of control risk after performing tests of controls.

-identifying specific controls to rely on. -performing tests of controls. -analyzing the achieved level of control risk after performing tests of controls.

You have been asked to test the effectiveness of Ingo Corporation's control of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. Jian Zhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 4 percent (although she expects the rate to be only approximately 0.25 percent) and a 5 percent risk of assessing control risk too low. Use the following to determine the planned assessed level of control risk and the assessed level of control risk. (Planned) Assessed Level of Control Risk Tolerable Deviation Rate Low 2-7% Moderate 6-12% Slightly below the maximum 11-20% MaximumOver 20% What is the planned assessed level of control risk? Determine the appropriate sample size and allowable number of deviations using this Figure Use this Figure to determine the achieved upper deviation rate and the above table to determine the assessed level of control risk under the following circumstances. Assume that the sample size was 100 items. (Round your answers to 1 decimal place.)

-low -sample size: 117 allowable # of deviations : 1 -no deviations were included in the sample : achieved upper deviation rate - 3.0% assessed level of control risk - low -1 deviation is included in the sample : achieved upper deviation rate - 4.7% assessed level of control risk - low -8 deviations were included in the sample : achieved upper deviation rate - 14.0% assessed level of control risk - slightly below the max

Auditors should have an understanding of the various terms that relate to their consideration of internal control of an organization. For each term presented below, select the category that most clearly defines or includes the term. The categories may be selected once, more than once, or not at all.

1.Accounting information system - Component of internal control 2.Control environment - Component of internal control 3.Flowchart - Documentation 4.Controls over operating effectiveness - Test of control 5.Less severe than a material weakness - Significant deficiency 6.Monitoring - Component of internal control 7.Questionnaire - Documentation 8.Walk-through - Implemented 9.Allows a reasonable possibility of a material misstatement - Material weakness 10.Reasonable assurance - Relationship of costs and benefits

Select each of the following terms with the appropriate attributes. No reply is used more than once.

1.Control risk - Likelihood a misstatement will not be prevented or detected 2.Further audit procedures - Substantive procedures and tests of controls 3.Inherent risk - Likelihood of misstatement assuming no controls 4.Integrated audit - Reporting on internal control and financial statements 5.Material weakness - Creates a reasonable possibility a material misstatement will not be detected 6.Risk assessment procedures - Inquiries, analytical procedures, observation 7.Significant deficiency - Merits attention, less than a material weakness 8.Suitable criteria - GAAP 9.Tests of controls - Inquire, inspect, observe, reperform 10.Walk-through - Follow a transaction through the system

Read the overview below and complete the activities that follow. In all accounting systems, a variety of controls must be designed to accomplish the organization's control objectives. CONCEPT REVIEW: Internal controls vary significantly between organizations--depending on attributes like organization size, nature of operations, and objectives. In all systems, however, a variety of controls needs to be designed to accomplish the organization's objectives. Controls are classified as preventive, detective, or corrective.

1.Segregation of duties is a control aimed at _______ misstatement. - preventing 2.The requirement to _________ journal entries is an example of a preventive control. - approve 3.The goal to find a misstatement that has already been made is a type of ________ control. - detective 4.Preparing bank ___________ can help detect misstatements that have been made. - reconciliations 5._______controls come into play when a misstatement is found. - Corrective

The following table depicts the possible outcomes for the auditor's estimated computed upper deviation rate based on a sample relative to the auditor's tolerable deviation rate (i.e., the computed upper deviation rate will either be above or below the tolerable deviation rate). The table also depicts the two possible states of the actual population deviation rate compared with the auditor's tolerable deviation rate (the actual population deviation rate is unknown to the auditor). Auditor's Estimate Based on Sample Results: Actual Population Deviation Rate Is Less Than Tolerable Deviation Rate Actual Population Deviation Rate Exceeds Tolerable Deviation Rate Computed upper deviation rate is less than tolerable deviation rate. Computed upper deviation rate exceeds tolerable deviation rate. Suppose as a result of sample testing of controls, an auditor assesses control risk higher than necessary given the actual (but unknown) population deviation rate and thereby increases substantive testing. This is illustrated by which of the four possible outcome conditions in the table above? 1 2 3 4

2 -control risk higher than necessary -> actual population deviation rate is less than tolerable deviation rate & computed upper deviation rate exceeds tolerable deviation rate

An auditor plans to use a monetary-unit sampling plan with a systematic sample selection on an account balance of $1,000,000. There are over 50 items that make up the account balance, ten of which are individually over $50,000. To ensure that all accounts with balances of at least $50,000 are selected, the minimum sample size should be 20. 50. 10. 30.

20 $1,000,000 / $50,000 = 20

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 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½ percent 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 computed upper deviation rate to be 8 percent. Based on the information above, the planned allowance for sampling risk was: 3½ percent. 4½ percent. 5½ percent. 1 percent.

4 1/2 percent -tolerable deviation rate of 7 - sample deviation rate of 2 1/2 = 4 1/2

Place the following steps in the top-down, risk-based approach to the audit of ICFR in their proper order: 1) Identify significant accounts and disclosures and their relevant assertions. 2) Select controls to test. 3) Understand likely sources of misstatement. 4) Identify entity level controls. 1, 2, 3, 4. 4, 1, 3, 2. 3, 4, 1, 2. 4, 2, 1, 3.

4, 1, 3, 2.

AnnaLisa, an auditor for N. M. Neal & Associates, is prevented by the management of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly regarded public accounting firm that the entity hired as a consultant and insists that it is a waste of time for AnnaLisa to evaluate these controls. Inventory is a material account, but procedures performed as part of the financial statement audit indicate the account is fairly stated. AnnaLisa found no material weaknesses in any other area of the entity's internal control relating to financial reporting. What kind of report should AnnaLisa issue on the effectiveness of Lileah's internal control? An exculpatory opinion. A disclaimer of opinion. An unqualified report. An adverse report.

A disclaimer of opinion.

Internal control is a process designed to provide reasonable assurance regarding the achievement of which objective? Effectiveness and efficiency of operations. Reliability of financial reporting. Compliance with applicable laws and regulations. All of these are correct

All of these are correct

In auditing a public company, Natalie, an auditor for N. M. Neal & Associates, identifies four deficiencies in ICFR. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably likely to result in misstatements that are not material but significant. What type of audit report should Natalie issue? An exculpatory opinion. An adverse report. An unqualified report. A disclaimer of opinion.

An unqualified report.

Which of the following represents the correct sequence of audit steps that come after first obtaining an understanding and documenting the entity's internal control? Assess Control Risk, Test of Controls, Determine Extent of Substantive Testing, Reassess Control Risk. Assess Control Risk, Determine Extent of Substantive Testing, Test of Controls, Reassess Control Risk. Assess Control Risk, Test of Controls, Reassess Control Risk, Determine Extent of Substantive Testing. Test of Controls, Assess Control Risk, Determine Extent of Substantive Tests, Reassess Control Risk.

Assess Control Risk, Test of Controls, Reassess Control Risk, Determine Extent of Substantive Testing.

The effectiveness of internal control is reduced by: Computerized accounting records. Flowcharts. Human errors or mistakes. Both a and c.

Both a and c.

Understanding each of the components of internal control provides knowledge about: The design of tests of controls. The assessment of inherent risks. Factors that affect the risk of material misstatement. Both a and c.

Both a and c.

For nonpublic companies with preliminary control risk assessments set at high, auditors are likely to: Complete interim testing of account balances. Test controls extensively. Complete little or no tests of controls. Use a reliance strategy.

Complete little or no tests of controls.

Which of the following types of evidence is most likely to utilize sampling? Observation. Analytical procedures. Scanning. Confirmation.

Confirmation.

Which of the following controls would most likely be tested during an interim period? Controls over transactions that involve a high degree of subjectivity. Controls over the period-end financial reporting process. Controls over nonroutine transactions. Controls that operate on a continuous basis.

Controls that operate on a continuous basis.

Entity-level controls can have a pervasive effect on the entity's ability to meet the control criteria. Which one of the following is not an entity-level control? The period-end financial reporting process. Controls to monitor results of operations. Controls to monitor the inventory taking process. Management's risk assessment process.

Controls to monitor the inventory taking process.

Which of the following combinations results in the greatest decrease in sample size in an attribute sample for a test of controls? Desired Confidence Level Tolerable Deviation Rate Expected Population Deviation Rate Decrease Increase Decrease Decrease Decrease Increase Increase Increase Decrease Decrease Increase Increase

Decrease Increase Decrease

The likelihood of assessing control risk too high is the risk that the sample selected to test controls Does support the auditor's planned assessed level of control risk when the true operating effectiveness of the control does not justify such an assessment. Does not support the auditor's planned assessed level of control risk when the true operating effectiveness of the control justifies such an assessment. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes. Contains proportionately fewer monetary errors or deviations from prescribed internal controls than exist in the balance or class as a whole.

Does not support the auditor's planned assessed level of control risk when the true operating effectiveness of the control justifies such an assessment.

For which of the following audit tests would an auditor most likely use attribute sampling? Selected accounts receivable for confirmation of account balances. Examining invoices in support of the valuation of equipment additions. Examining supporting documentation for purchases for evidence of proper authorization. Observation of employees who control mailroom receipts.

Examining supporting documentation for purchases for evidence of proper authorization.

Which of the following is not a requirement for management under Section 404 of the Sarbanes-Oxley Act of 2002? Present a written assessment regarding the effectiveness of the entity's ICFR as of the end of the most recent fiscal year. Support the evaluation of the entity's ICFR with sufficient evidence, including documentation. Guarantee effectiveness of the entity's ICFR. Accept responsibility for the effectiveness of the entity's ICFR.

Guarantee effectiveness of the entity's ICFR.

Which of the following is considered one of the main advantages of classical variables sampling over monetary-unit sampling? Inclusion of zero balances generally do not require special sampling considerations. Any amount that is individually significant is automatically identified and selected. An understanding of standard deviation and normal distribution theory is not necessary. Auditors rarely need the assistance of computer software to design and carry out an effective sampling plan.

Inclusion of zero balances generally do not require special sampling considerations.

Which of the following audit techniques would most likely provide an auditor with the least assurance about the effectiveness of the operation of a control? Observation of entity personnel. Walkthrough. Reperformance of the control by the auditor. Inquiry of entity personnel.

Inquiry of entity personnel.

Select the necessary words from the list of possibilities to complete the following statements.

Maintaining effective internal control is the responsibility of the *management*. If the auditors conclude that material weaknesses exist in internal control they should issue a written communication to management and the *board of directors* in which they indicate that the audit of internal control cannot be completed. The control framework ordinarily used in an internal control audit is Internal Control—Integrated Framework, created by the *Committee of Sponsoring Organizations (COSO)* of the Treadway Commission. A significant deficiency is a control deficiency that is less severe than a *material weakness* yet important enough to merit attentions by those responsible for oversight of the company's financial reporting. Determining the allowance for doubtful accounts, establishing warranty reserves, and assessing assets for impairment are examples of *management estimates* that involve judgments or assumptions. To express the internal control opinion, the auditors should obtain sufficient evidence on the effectiveness of controls at the *as of* date. The achievement of overall control objectives is pervasively affected by *entity level* controls. Ineffective audit committee oversight of management is regarded as at least a *significant deficiency*. Significant financial statement accounts are materially affected, either directly through entries in the general ledger, or indirectly through the creation of rights or obligations that may or may not be recorded in the general ledger by *major classes of transactions*. The auditors should design procedures to provide a high level of assurance that the controls related to each *relevant assertion* are operating effective.

The requirements of Section 404 of the Sarbanes-Oxley Act of 2002 apply to All companies that are subject to an independent audit. All privately-held companies. All companies with sales in excess of $500 million. Most publicly-held companies.

Most publicly-held companies.

Which of the following statements regarding auditor documentation of the entity's internal control is correct? Internal control questionnaires are specifically tailored to meet the needs of each individual entity. Documentation must include narrative memorandums. No one particular form of documentation is necessary, and the extent of documentation may vary. No documentation is necessary to satisfy GAAS, however, oral inquiry is required at minimum.

No one particular form of documentation is necessary, and the extent of documentation may vary.

Which of the following statements is true regarding audit sampling? When using statistical sampling, the sample can be selected haphazardly. When using nonstatistical sampling, sampling risk does not need to be considered. Nonstatistical audit sampling is commonly used in practice. When using nonstatistical sampling, the sample does not need to be representative of the population.

Nonstatistical audit sampling is commonly used in practice.

Which of the following best illustrates the components that make up the upper deviation rate [UDR]? Sample deviation rate + risk of assessing control risk too high. Sample deviation rate + allowance for sampling risk. Tolerable deviation rate + allowance for sampling risk. Expected population deviation rate + allowance for sampling risk.

Sample deviation rate + allowance for sampling risk.

The risk of incorrect rejection is associated with Inherent risk. Engagement risk. Sampling risk Audit risk.

Sampling risk

If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on which of the following for its assessment? Selective control test at that location. Documentation and test controls over specific risks. Documentation and test entity-level controls over the entire entity. Self-assessment processes in conjunction with entity-level controls.

Self-assessment processes in conjunction with entity-level controls.

Which of the following statements is true in an attribute sampling plan where the tolerable deviation rate is 7%, the computed upper deviation rate is 6.5%, the sample deviation rate is 2%, and the risk of assessing control risk too low is 5%? The auditor is likely to determine that the results do not support reliance on the control because the computed upper deviation rate plus the sample deviation rate is greater than the tolerable deviation rate. The auditor is likely to determine that the results do support reliance on the control because the computed upper deviation rate is less than the tolerable deviation rate. The auditor is likely to increase control risk because the computed upper deviation rate is less than the risk of assessing control risk too low. The auditor is likely to decrease control risk because the computed upper deviation rate is less than the risk of assessing control risk too low.

The auditor is likely to determine that the results do support reliance on the control because the computed upper deviation rate is less than the tolerable deviation rate.

Which of the following statements concerning control deficiencies is true? All significant deficiencies are material weaknesses. The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit. All control deficiencies are significant deficiencies. An auditor must immediately report material weaknesses and significant deficiencies discovered during an audit to the PCAOB.

The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit.

The Sarbanes-Oxley Act of 2002 requires management to include a report on the effectiveness of ICFR in the entity's annual report. It also requires auditors to report on the effectiveness of ICFR. Which of the following statements concerning these requirements is false? Management's report should state its responsibility for establishing and maintaining an adequate internal control system. The auditor should provide recommendations for improving internal control in the audit report. Management should identify material weaknesses in its report. The auditor should evaluate whether internal controls over financial reporting are designed and operating effectively.

The auditor should provide recommendations for improving internal control in the audit report.

Which of the following statements about internal control is correct? An exceptionally strong internal control system is enough for the auditor to eliminate substantive procedures on a significant account balance. A properly maintained internal control system reasonably ensures that collusion among employees cannot occur. The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system. The establishment and maintenance of internal control is an important responsibility of the internal auditor.

The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system.

Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a misstatement in an account balance? The interaction or relationship of the control with other controls. The financial statement amounts exposed to the deficiency. The susceptibility of the related assets or liability to loss or fraud. The nature of the financial statement accounts, disclosures, and assertions involved.

The financial statement amounts exposed to the deficiency.

Monitoring is a major component of the COSO Internal Control—Integrated Framework. Which of the following is not correct in how the company can implement the monitoring component? The independent auditor can serve as part of the entity's control environment and continuous monitoring. Monitoring can be conducted as a separate evaluation. Monitoring and other audit work conducted by internal audit staff can reduce external audit costs. Monitoring can be an ongoing process.

The independent auditor can serve as part of the entity's control environment and continuous monitoring.

Assume an auditor is evaluating a statistical attribute sample of 50 items that resulted in three deviations. What should the auditor conclude if the tolerable deviation rate is 7 percent, the expected population deviation rate is 5 percent, and the allowance for sampling risk is 2 percent? The planned assessed level of control risk should be modified because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate. The sample results should be accepted as support for the planned assessed level of control risk because the tolerable deviation rate less the allowance for sampling risk equals the expected population deviation rate. The sample results should be accepted as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate. The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Which of the following is a proper reason for not conducting tests of controls for nonpublic companies? The procedures require more audit effort than the projected benefits to be obtained from lowering the control risk. The auditor prefers the control risk to be the minimum. The internal control structure appears very strong. Incorrect The company does not have any flowcharts of its system available for review.

The procedures require more audit effort than the projected benefits to be obtained from lowering the control risk.

Which of the following statements is correct concerning statistical sampling in tests of controls? There is an inverse relationship between the sample size and the tolerable deviation rate. Deviations from controls at a given rate usually result in misstatements at a higher rate. As the population size doubles, the sample size should also double. The qualitative aspects of deviations are not considered by the auditor.

There is an inverse relationship between the sample size and the tolerable deviation rate.

An auditor plans to examine a sample of 40 accounts payable invoices for proper approval as prescribed by the entity's internal accounting control procedures. One of the invoices in the chosen sample cannot be found, and the auditor is unable to use alternative procedures to determine whether the invoice was properly approved. The auditor should Treat the missing invoice as a deviation for the purpose of evaluating the sample. Select a completely new random set of 40 invoices. Choose another invoice to replace the missing one in the sample. Consider this compliance test invalid and proceed with substantive tests because internal control cannot be relied upon.

Treat the missing invoice as a deviation for the purpose of evaluating the sample.

An auditor is determining the sample size for an inventory observation using difference estimation [classical variables sampling]. To calculate the required sample size, the auditor usually determines the Population size Desired Confidence No Yes Yes Yes Yes No No No

Yes Yes

When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why: deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate. a recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement. deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions. a recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.

a recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.

During audits of internal control over financial reporting of various issuers, the auditors encountered the independent situations below. For each situation a through e select from the following list the appropriate audit responses. Each reply may be used once, more than once, or not at all.

a.The client did not furnish adequate evidence for the auditors to evaluate internal control over inventory. All other evidence was provided. - Issue a disclaimer of opinion. b.The auditors examined the client's internal control over cash receipts and concluded that they are operating exactly as designed. However, the design of the controls does not include control procedures to prevent misstatements and the potential omission of cash receipts. - Determine if the control deficiency is a material weakness by obtaining further evidence. c.The auditors concluded that the ineffectiveness of the design of controls over accounts payable and cash disbursements represents a material weakness in internal control, even though the financial statements are not materially misstated. - Express an adverse opinion on internal controls. d.The auditors concluded that a significant deficiency in internal control exists in the payroll function, but no material weakness. - Express an unqualified opinion on internal control. e.The auditor's prior-year report on internal control included an adverse opinion. The client has since modified internal control and no material weaknesses were found in the current year. - Express an unqualified opinion on internal control.

Match each of the following terms to the appropriate definition in the dropdowns.

a.attribute sampling - Used to estimate the proportion of a population that possesses a certain characteristic b.Desired confidence level - The probability that the true but unknown measure of the characteristic of interest is within specified limits c.Allowance for sampling risk - The difference between the expected and the tolerable deviation rate d.Sampling risk - The possibility that the sample drawn is not representative of the population and leads to an incorrect conclusion e.Sampling population - All or a subset of the items that constitute the class of transactions f.Nonstatistical sampling - Relies on the auditor's judgment to determine sample size and evaluate the results g.Tolerable deviation rate - The maximum deviation rate from a prescribed control that an auditor is willing to accept

Sampling Risk When performing a test of controls, auditors must be concerned with two aspects of sampling risk: assessing control risk too high and assessing control risk too low. Assessing control risk too high is the risk that the sample results will cause the auditors to assess control risk higher than warranted based on the actual operating effectiveness of the control. Assessing control risk too low is the more important risk that the sample results will cause the auditors to assess risk at a lower level than warranted.

affects audit efficiency: -assessing control risk too high -performing too much testing than necessary affects audit effectiveness: -assessing control risk too low -not performing enough testing

After obtaining an understanding of an entity's internal control system, an auditor may set control risk at high for some assertions because the auditor: -determines that the pertinent internal control components are not well documented. -believes the internal controls are unlikely to be effective. -identifies internal controls that are likely to prevent material misstatements. -performs tests of controls to restrict detection risk to an acceptable level.

believes the internal controls are unlikely to be effective.

A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a: material weakness. deficiency in operation. significant deficiency. deficiency in design.

deficiency in operation.

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to: minimize the failure to detect errors and fraud. eliminate the risk of nonsampling errors. reduce audit risk and materiality to a relatively low level. measure the sufficiency of the evidential matter obtained.

measure the sufficiency of the evidential matter obtained.

The highest-quality and most reliable audit evidence that segregation of duties is properly implemented is obtained by: observation by the auditor of the employees performing control activities. inspection of a flowchart of duties performed and available personnel. inspection of documents prepared by a third party but which contain the initials of those applying entity controls. inquiries of employees who apply control activities.

observation by the auditor of the employees performing control activities.

Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent: disclosures of information that significantly contradict the auditor's going concern assumption. significant deficiencies in the design or operation of the internal control. material fraud or illegal acts perpetrated by high-level management. manipulation or falsification of accounting records or documents from which financial statements are prepared.

significant deficiencies in the design or operation of the internal control.

Regardless of the assessed level of control risk, an auditor would perform some: substantive procedures to restrict detection risk for significant transaction classes. analytical procedures to verify the design of internal controls. dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk. tests of controls to determine the effectiveness of internal controls.

substantive procedures to restrict detection risk for significant transaction classes.

Samples to test internal controls are intended to provide a basis for an auditor to conclude whether: materiality for planning purposes is at a sufficiently low level. the controls are operating effectively. the risk of incorrect acceptance is too high. the financial statements are materially misstated.

the controls are operating effectively.

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that: the deviation rates of both the auditor's sample and the population are less than the tolerable deviation rate. the deviation rates of both the auditor's sample and the population exceed the tolerable deviation rate. the deviation rate in the auditor's sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate. the deviation rate in the auditor's sample exceeds the tolerable deviation rate, but the deviation rate in the population is less than the tolerable deviation rate.

the deviation rate in the auditor's sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate.

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 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½ percent 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 computed upper deviation rate to be 8 percent. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the: tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent). computed upper deviation rate (8 percent) was more than the percentage of errors in the sample (3½ percent). expected population deviation rate (2½ percent) was less than the tolerable deviation rate (7 percent). expected population deviation rate (7 percent) was more than the percentage of errors in the sample (3½ percent).

tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent).

A walkthrough is one procedure used by an auditor as part of the internal control audit. A walkthrough requires an auditor to: -trace a transaction from each major class of transactions from origination through the entity's information system until it is reflected in the entity's financial reports. -trace a transaction from each major class of transactions from origination through the entity's information system. -trace a transaction from every class of transactions from origination through the entity's information system. -tour the organization's facilities and locations before beginning any audit work.

trace a transaction from each major class of transactions from origination through the entity's information system until it is reflected in the entity's financial reports.

An auditor's flowchart of an entity's accounting system is a diagrammatic representation that depicts the auditor's: understanding of the system. understanding of the types of fraud that are probable, given the present system. documentation of the study and evaluation of the system. program for tests of controls.

understanding of the system.