Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

How does the likely rate of deviation impact planned sample size in testing controls?

1. Higher likely rates necessitate smaller sample sizes

2. As likely rate decreases, sample size should increase

3. It has no effect on planned sample size

4. It requires fixed sample sizes regardless of rate

The correct answer is: As likely rate decreases, sample size should increase

The correct choice reflects the principle that as the likely rate of deviation in a control increases, the auditor must consider a smaller sample size for testing. However, the reverse also holds true: when the likely rate of deviation decreases, the planned sample size should indeed increase. This is rooted in the need for sufficient assurance that the control will operate effectively. When the likelihood of a control failing is low, the auditor can justify a larger sample size to ensure that the estimation holds across a broader scope. This approach helps to enhance the reliability of the control assessment, as the goal is to adequately sample enough instances to confidently conclude that the control is operating as intended. If the rate of deviation were actually higher, it could suggest that the control is not functioning well, leading to potentially unreliable results from a smaller sample size. Thus, understanding this relationship is critical, as it guides auditors in making sample size decisions that are efficient and effective based on the specific control being tested and its likely performance.