Upper Deviation Rate is the sum of all the samples taken by the auditor and addition of allowance for sampling risk. If the upper deviation limit is less than or equal to the tolerable rate, the sample results support reliance on the control procedures tested. Allowance for Sampling Risk can be defined as uncertainties associated with sampling. It is the difference between tolerable deviation and mean of population. Tolerable Deviation Rate is the maximum deviation that an auditor is willing to accept so as to rely upon a specific control. It is inversely proportional to the sample size . It is the maximum possible variance accepted in audit sampling in order to rely upon a specific control. If control risk is increasing, it clearly brings out that actual population deviation rate (actual deviation) is higher than deviation computed by auditor that is the upper deviation set by him. Substantive Testing shows that although actual population rate exceeds upper deviation rate but it doesn’t mean that it exceeds tolerable deviation rate and auditor cannot rely upon it totally. To describe: Expected population deviation and tolerable deviation rate relationships.

Question

Want to see the full answer?

Answer 1

Question

Chapter 8, Problem 8.17MCQ

To determine

Introduction:

Upper Deviation Rate is the sum of all the samples taken by the auditor and addition of allowance for sampling risk. If the upper deviation limit is less than or equal to the tolerable rate, the sample results support reliance on the control procedures tested.

Allowance for Sampling Risk can be defined as uncertainties associated with sampling. It is the difference between tolerable deviation and mean of population.

Tolerable Deviation Rate is the maximum deviation that an auditor is willing to accept so as to rely upon a specific control. It is inversely proportional to the sample size. It is the maximum possible variance accepted in audit sampling in order to rely upon a specific control.

If control risk is increasing, it clearly brings out that actual population deviation rate (actual deviation) is higher than deviation computed by auditor that is the upper deviation set by him.

Substantive Testing shows that although actual population rate exceeds upper deviation rate but it doesn’t mean that it exceeds tolerable deviation rate and auditor cannot rely upon it totally.

To describe: Expected population deviation and tolerable deviation rate relationships.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

(Annual percentage yield) Compute the cost of the following trade credit terms using the compounding formula, or effective annual rate. Note: Assume a 30-day month and 360-day year. a. 3/5, net 30 b. 3/15, net 45 c. 4/10, net 75 d. 3/15, net 45 ... a. When payment is made on the net due date, the APR of the credit terms of 3/5, net 30 is decimal places.) %. (Round to two

Suppose XYZ is a non-dividend-paying stock. Suppose S = $100, σ = 40%, δ = 0, and r = 0.06. What is the price of a 105-strike call option with 1 year to expiration? What is the 1-year forward price for the stock? What is the price of a 1-year 105-strike option, where the underlying asset is a futures contract maturing at the same time as the option?

California Construction Inc. is considering a 15 percent stock dividend. The capital accounts are: Common stock (6,000,000 shares at $10 par) ....... $60,000,000 Capital in excess of par* ...................................... 35,000,000 Retained earnings ................................................ 75,000,000 Net worth ......................................................... $170,000,000 *The increase in capital in excess of par as a result of a stock dividend is equal to the shares created times (Market price – Par value). The company’s stock is selling for $32 per share. The company had total earnings of $19,200,000 with 6,000,000 shares outstanding and earnings per share were $3.20. The firm has a P/E ratio of 10. a. Show the new capital accounts if a 15 percent stock dividend is given. b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) c. How many shares would an investor have if they originally had 80 shares? d. What…