If an audit team calculated an upper limit rate of deviation of 5 percent when the tolerable rate of deviation was 4 percent,both at the same risk of overreliance,control risk should be
A) Assessed at the level associated with the 4 percent tolerable rate of deviation.
B) Increased and substantive procedures should be adjusted accordingly.
C) Assessed at the maximum level (100 percent) because the company's performance failed the test.
D) Decreased and substantive procedures should be adjusted accordingly.

Question

Quizplus · Accepted Answer

The fact that the upper limit rate of deviation is higher than the tolerable rate of deviation indicates that the control is not operating effectively, which means that there is a higher risk of misstatement. As a result, control risk should be increased, and substantive procedures should be adjusted accordingly to obtain sufficient appropriate evidence. Choosing A or D would not address the increased risk of misstatement, while C is an extreme option that does not consider the possibility of improving the control. Therefore, B is the best choice.

If an Audit Team Calculated an Upper Limit Rate of Deviation