Carefully consider the meaning and importance of risk of overreliance, the tolerable rate of deviation, and the
Question:
Carefully consider the meaning and importance of risk of overreliance, the tolerable rate of deviation, and the expected population deviation rate. Observe that Exhibit 8.5 Table 1 is used if the risk of overreliance is 5% and Exhibit 8.5 Table 2 is used if the risk of overreliance is 10%. Also notice that the term ?expected population deviation rate? implies that the audit is aware that there are deviations in the population. This awareness likely is based on past experience and present conditions within the entity being audited. In the sample size column of both exhibit tables the number in parenthesis is the expected number of errors from the corresponding data. That number is simply sample size times expected population deviation rate.
The partially completed table below includes information about risk of over reliance, the tolerable rate of deviation, and the expected population deviation rate. Referring to Exhibit 8.5 Table 1 or Table 2 as appropriate, and enter the sample size indicated for each item.
Risk Of Overreliance Tolerable Rate of Deviation Expected Population Deviation Rate Sampling Size
Risk Of Overreliance Size | Tolerable Rate of Deviation | Expected Population Deviation Rate | Sampling |
5% | 2% | 1% | ? |
5% | 6% | 5% | ? |
5% | 10% | 8% | ? |
5% | 2% | 1% | ? |
5% | 6% | 5% | ? |
10% | 10% | 8% | ? |
10% |
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|
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College Accounting
ISBN: 978-1111528126
11th edition
Authors: Tracie Nobles, Cathy Scott, Douglas McQuaig, Patricia Bille