an auditor desired to test credit approval on 10 000 sales invoices processed during 602515

Items 1 and 2 are based on the following:

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 1/2% 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 achieved upper precision limit to be 8%.

In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the

  1. Tolerable rate (7%) was less than the achieved upper precision limit (8%).
  2. Expected deviation rate (7%) was more than the percentage of errors in the sample (3 1/2%).
  3. Achieved upper precision limit (8%) was more than the percentage of errors in the sample (3 1/2%).
  4. Expected deviation rate (2 1/2%) was less than the tolerable rate (7%).

The allowance for sampling risk was

  1. 5 1/2%
  2. 4 1/2%
  3. 3 1/2%
  4. 1%