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

What most likely explains an auditor incorrectly assessing control risk too low?

1. Both sample and population deviation rates are less than the tolerable rate

2. Sample deviation rate is less than tolerable rate while true population rate exceeds it

3. Sample deviation rate exceeds tolerable rate but population rate is less than it

4. The deviation rates of both the sample and population are greater than the tolerable rate

The correct answer is: Sample deviation rate is less than tolerable rate while true population rate exceeds it

Assessing control risk too low can occur when the auditor relies on sample results that may not accurately reflect the true population. In this case, the sample deviation rate being less than the tolerable rate can lead to an incorrect conclusion about the effectiveness of internal controls. When the auditor selects a sample and finds the sample deviation rate is below the tolerable rate, they may incorrectly conclude that the controls are operating effectively. However, if the true population deviation rate is actually higher than the tolerable rate, this indicates that the controls may not be effective, leading to an underestimation of control risk. This scenario highlights the importance of considering the potential differences between sample estimates and the actual population rates when making assessments about internal controls. The other scenarios do not support the assessment of control risk being too low in the same way. In cases where both the sample and population deviation rates exceed the tolerable rate, or where the sample rate exceeds the tolerable limit while the population is below it, these situations indicate a clear risk of controls not functioning as intended, guiding the auditor to assess control risk at a higher level. Thus, the key aspect of option B lies in the discrepancy between the favorable sample results and the unfavorable true population rate, which can mislead