# Question: Jamie Plane is testing the effectiveness of an important control

Jamie Plane is testing the effectiveness of an important control for Blackheart Inc. Plane is placing a high level of reliance on this control and has assessed a relatively low risk of overreliance (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, Plane determined a sample size of 60 items. The tests of controls revealed three deviations.

Required:

a. Calculate the sample rate of deviation.

b. Using AICPA sample evaluation tables, calculate the upper limit rate of deviation and allowance for sampling risk.

c. Why does the upper limit rate of deviation differ from the sample rate of deviation?

d. What would Plane’s conclusion be with respect to the operating effectiveness of the control? What options are available at this time?

e. Ignoring the effects on sample size, how would Plane’s decision to accept a higher risk of overreliance (10 percent) affect the conclusions made with respect to the operating effectiveness of the control?

Required:

a. Calculate the sample rate of deviation.

b. Using AICPA sample evaluation tables, calculate the upper limit rate of deviation and allowance for sampling risk.

c. Why does the upper limit rate of deviation differ from the sample rate of deviation?

d. What would Plane’s conclusion be with respect to the operating effectiveness of the control? What options are available at this time?

e. Ignoring the effects on sample size, how would Plane’s decision to accept a higher risk of overreliance (10 percent) affect the conclusions made with respect to the operating effectiveness of the control?

**View Solution:**## Answer to relevant Questions

Required: Review each of the following independent sets of conditions. For each condition, calculate the (1) Sample rate of deviation, and use AICPA sample evaluation tables to identify the (2) Upper limit rate of deviation ...Tom Barton, an assistant accountant with a local CPA firm, recently graduated from Other University. He studied statistical sampling for auditing in college and wants to impress his employers with his knowledge of modern ...Sydney Siebenthaler, the audit manager for Jennifer’s Running Shirts Inc., has just returned from a continuing education class on audit sampling and now wants to use discovery sampling or sequential sampling on the ...What are some important considerations for the audit team when selecting sample items?How does the audit team determine the acceptable level of the risk of incorrect acceptance? What is the relationship between this risk and sample size?Post your question