Discuss AICPA CPA-Auditing Exam Topic 1 Question 126

An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing control risk too low (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 deviation rate to be 8%.

The allowance for sampling risk was:

A5.5%

B4.5%

C3.5%

D1%

Suggested Answer: B

Choice 'b' is correct. The allowance for sampling risk is the excess of the 8% upper deviation rate over the 3.5% (= 7 200) sample deviation rate, or 4.5%.

Choices 'a', 'c', and 'd' are incorrect, based on the above Explanation: .

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22 comments · newest first

Myra 2 days ago

I think the answer is A) 5.5%. It seems reasonable based on the sample.

Wendell 7 days ago

This question is tricky. I feel unsure about the calculations.

Jody 12 days ago

I’m leaning towards C) 3.5%. It seems reasonable.

Margart 17 days ago

I agree with A) 5.5%. It fits the risk level.

Alecia 23 days ago

The upper deviation rate is key here.

Alexis 28 days ago

I feel like it could be B) 4.5%.

Dortha 1 month ago

I think the answer is A) 5.5%.

Tayna 1 month ago

This question is tricky!

Kristel 1 month ago

Based on the stats, I’d go with option B, 4.5%.

Merissa 2 months ago

I think it’s definitely more than 1%, but not sure about the exact number.

Lavonna 2 months ago

Wait, how can the allowance for sampling risk be that high?

Gene 2 months ago

Seems like a risky situation with 7% lacking approval.

Lillian 2 months ago

The upper deviation rate is 8%, wow!

Martin 2 months ago

5.5% is correct, but I’m surprised they found that many without approval!

Selma 2 months ago

I think it’s actually 4.5%, not 5.5%.

Felicitas 3 months ago

Wait, how did they get to 8%? Seems high for just 7 invoices.

Elmer 3 months ago

Totally agree, 5.5% makes sense based on the numbers.

Eve 3 months ago

The upper deviation rate is 8%, so the allowance for sampling risk is 5.5%.

Milly 3 months ago

I think the allowance for sampling risk is calculated based on the difference between the expected and actual rates. I might lean towards option B, but I need to double-check my calculations.

Alonso 3 months ago

I feel like I should be able to figure this out, but the upper deviation rate being 8% is throwing me off. Wasn't the goal to keep it under 7%?

Shasta 4 months ago

This question seems similar to one we did in class about determining the allowance for sampling risk. I think it might be around 4.5%, but I can't recall the exact steps.

Willard 5 months ago

I remember we practiced calculating the allowance for sampling risk, but I'm not sure how to apply it here with the upper deviation rate.

AICPA CPA-Auditing Exam - Topic 1 Question 126 Discussion