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Provide an estimate of the population deviation rate

Question:

As part of your audit of the Abba Company accounts payable function, your audit program includes a test of controls addressing the company policy requiring that all vouchers be properly approved. You estimate the population deviation rate to be 3 percent.

Required:

1. In addition to an estimate of population deviation rate, what factors affect the size of the sample needed?

2. What bases could be used to provide an estimate of the population deviation rate?

3. Assume that a sample of 100 has been drawn, audit tests performed, and a sample deviation rate of 4 percent computed. Furthermore, you have selected a 5 percent risk of assessing control risk too low as appropriate. Use the appropriate table to determine the achieved upper deviation rate.

4. What actions can be taken to deal with a situation in which the achieved upper deviation rate exceeds the tolerable rate?

5. Make the same assumptions as in part (c). Use ACL to determine the achieved upper deviation rate.

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