An auditor is evaluating the results of a test of controls. The auditor set the tolerable deviation rate at 7%. The sample deviation rate was 4%. The allowance for sampling risk was calculated as 4%. The auditor should:

Answer options:

Rely on the control as planned.

Increase the assessed level of control risk.

Decrease substantive testing.

Issue a qualified opinion.

How to approach this question

Upper Deviation Rate = 4% + 4% = 8%. 8% > 7% Tolerable. Fail. Result: Increase Control Risk -> Increase Substantive Testing.

Full Answer

B.Increase the assessed level of control risk.✓ Correct

The Upper Deviation Rate (8%) exceeds the Tolerable Deviation Rate (7%). Therefore, the control is not operating effectively. The auditor must increase the assessed level of control risk (assume controls are weak) and consequently increase the extent of substantive procedures.

Common mistakes

Thinking a control failure automatically means a Qualified Opinion (it just changes the audit strategy unless substantive testing also fails).

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