
Determine the sample rate of deviation, ULRD, and allowance for sampling risk for each condition.

Explanation of Solution
Attributes sampling: Attributes sampling helps the auditor to assess a specific rate of occurrence for a specific characteristic of the audit population. It is helpful in finding the estimate related to a particular transaction or activity in the system.
Sample rate of deviation: It is a rate of deviation that ascertains the percentage of occurrence and accuracy of control. Sample rate of deviation is calculated by using the following formula:
Upper Limit Rate of Deviation (ULRD): It is an adjusted deviation rate that ascertains a conservative measure of the population rate of deviation and allows the auditor to control the disclosure of sampling risk to acceptable levels.
Allowance for sampling risk: It is the “adjustment” of the sample deviation rate for the acceptable risk of overreliance. Allowance for sampling risk is calculated by using the following formula:
a.
Determine the sample rate of deviation.
Determine ULRD by using AICPA sample evaluation tables.
According to the AICPA sample evaluation tables, the ULRD for 8 deviations of 100
Determine allowance for sampling risk.
Hence, the sample rate of deviation, upper limit rate of deviation and allowance for sampling risk is 8%, 14% and 6% respectively.
b.
Determine the sample rate of deviation.
Determine ULRD by using AICPA sample evaluation tables.
According to the AICPA sample evaluation tables, the ULRD for 4 deviations of 100 sample size at 5% risk of overreliance is 9%.
Determine allowance for sampling risk.
Hence, the sample rate of deviation, upper limit rate of deviation and allowance for sampling risk is 4%, 9% and 5% respectively.
c.
Determine the sample rate of deviation.
Determine ULRD by using AICPA sample evaluation tables.
According to the AICPA sample evaluation tables, the ULRD for 8 deviations of 100 sample size at 10% risk of overreliance is 12.7%.
Determine allowance for sampling risk.
Hence, the sample rate of deviation, upper limit rate of deviation and allowance for sampling risk is 8%, 12.7% and 4.7% respectively.
Write the comments for the relationship of each factor to the ULRD.

Explanation of Solution
The difference of ULRD in (a) and (b) is due to decrease in number of deviation from 8 (in a) to 4 (in b). Here, the decrease in ULRD from 14% to 9% indicates that the number of deviations and sample rate of deviation is directly proportional to ULRD.
The difference of ULRD in (a) and (c) is due to increase in the risk of overreliance from 5% (in a) to 10% (in c). Here, the decrease in ULRD from 14% to 12.7% indicates that the risk of overreliance is inversely proportional to ULRD.
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Chapter F Solutions
Auditing & Assurance Services (Auditing and Assurance Services)
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