Question

A. Mason Rowe is testing the effectiveness of an important control for Hart Inc. Rowe is placing a high level of reliance on this control and has assessed a relatively low risk of assessing control risk too low (5 percent) and tolerable rate of deviation (6 percent). Based on the acceptable risk of overreliance, expected population deviation rate, and tolerable rate of deviation, Rowe determined a sample size of 60 items. The tests of controls revealed three deviations. Required: Calculate the sample rate of deviation. Using AICPA sample evaluation tables, calculate the upper limit rate of deviation and allowance for sampling risk. Why does the upper limit rate of deviation differ from the sample rate of deviation? What would Rowe's conclusion be with respect to the operating effectiveness of the control? What options are available at this time? Ignoring the effects on sample size, how would Rowe's decision to accept a higher risk of assessing control risk too low (10 percent) affect the conclusions made with respect to the operating effectiveness of the control?

Answer 1

A sample rate of deviation is extend of variations found by the audit team.Sample determine dividing the number of deviation by the sample This provide one representation of true population rate of deviation.

When using attribute sampling to make sure yor sample is representing the whole,you have to add the sampling risk 2 percent to 4 percent population errors rate.This two figures are combined are referred to as the upper deviation rate.(5*6)=30

The auditor should test the operating effectiveness of a control selected for testing by determining whether the control is operating as design and whether the person performing the processes the necessary authority and competent the perform the control effectively.