An auditor wanted to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide a 1% risk of overreliance (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½% of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the upper limit rate of deviation to be 8%.
In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the
A. Tolerable rate of deviation (7%) was less than the upper limit rate of deviation (8%).
B. Expected population deviation rate (7%) was more than the percentage of errors in the sample (3½%).
C. Expected population deviation rate (2½%) was less than the tolerable rate of deviation.
D. Upper limit rate of deviation (8%) was more than the percentage of errors in the sample (3½%).
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