An auditor uses attribute sampling to test internal controls. The auditor establishes a tolerable deviation rate of 5%. The sample results indicate a sample deviation rate of 3% and an allowance for sampling risk of 3%. The auditor should conclude:

Answer options:

The control is operating effectively because the sample rate (3%) is less than the tolerable rate (5%).

The control cannot be relied upon because the upper deviation rate exceeds the tolerable rate.

The sample size should be increased to reduce the allowance for sampling risk.

The control is effective because the allowance for sampling risk is within acceptable limits.

How to approach this question

Formula: Upper Deviation Rate = Sample Rate + Allowance for Sampling Risk. Compare Upper to Tolerable.

Full Answer

B.The control cannot be relied upon because the upper deviation rate exceeds the tolerable rate.✓ Correct

In attribute sampling, the auditor compares the Upper Deviation Rate (UDR) to the Tolerable Deviation Rate (TDR). UDR = Sample Deviation Rate (3%) + Allowance for Sampling Risk (3%) = 6%. Since 6% > 5% (TDR), the auditor cannot rely on the control at the planned level.

Common mistakes

Comparing Sample Rate directly to Tolerable Rate, ignoring sampling risk.

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