Tolerable Deviation Rate is defined as the maximum rate of acceptability of misstatement. It is the maximum possible variance accepted in audit sampling in order to rely upon a specific control. Upper Deviation Rate is defined as sample deviation rate and an appropriate allowance for sampling risks.If the upper deviation limit is less than or equal to the tolerable rate, the sample results support reliance on the control procedures tested. In this case, tolerable deviation rate i.e., 7% which is lower than upper deviation rate of 8% which clearly shows controls is ineffective. Auditor cannot rely on the entity’s internal controls. To describe: Relationship between tolerable rate and upper deviation rate.

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Chapter 8, Problem 8.15MCQ

To determine

Introduction:

Tolerable Deviation Rate is defined as the maximum rate of acceptability of misstatement. It is the maximum possible variance accepted in audit sampling in order to rely upon a specific control.

Upper Deviation Rate is defined as sample deviation rate and an appropriate allowance for sampling risks.If the upper deviation limit is less than or equal to the tolerable rate, the sample results support reliance on the control procedures tested.

In this case, tolerable deviation rate i.e., 7% which is lower than upper deviation rate of 8% which clearly shows controls is ineffective. Auditor cannot rely on the entity’s internal controls.

To describe: Relationship between tolerable rate and upper deviation rate.

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