You are determining the significance of the following: you set a 5% risk of assessing control risk too low and your computation of the upper deviation risk is 7%. What could you conclude?
A) There is a 95% chance the deviation rate in the population is less than 5%.
B) There is a 5% chance the deviation rate in the population is less than 7%.
C) There is a 95% chance the deviation rate in the population exceeds 95%.
D) There is a 5% chance the deviation rate in the population exceeds 7%.

Question

Quizplus · Accepted Answer

This question is asking about assessing the risk of material misstatement (RMM) in the population. The 5% risk of assessing control risk too low is the auditor's risk of material misstatement (ARM) which is the risk of concluding that controls are effective when they are actually not. The upper deviation risk is the estimated rate of deviation in the population based on the sample results. If the upper deviation risk is 7%, then there is a 5% chance (corresponding to the 5% ARM) that the true population deviation rate is higher than 7%. Therefore, the correct answer is (D) "There is a 5% chance the deviation rate in the population exceeds 7%."

You Are Determining the Significance of the Following: You Set