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 2.5% 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%. The allowance for sampling risk was
A) 5.5%.
B) 4.5%.
C) 3.5%.
D) 1%.

Question

Quizplus · Accepted Answer

The allowance for sampling risk is the difference between the upper limit rate of deviation (8%) and the estimated percentage of invoices lacking approval from previous experience (2.5%). Therefore, the allowance for sampling risk is 5.5% (8% - 2.5%). The correct answer is B, which represents the only choice that matches this value.

An Auditor Wanted to Test Credit Approval on 10,000 Sales