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

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What should an auditor consider when determining the number of documents to select for a test to ensure sales returns are properly authorized?

  1. Only the likelihood of deviations

  2. Both the likely rate of deviations and the allowable risk of assessing control risk too high

  3. Only the allowable risk of assessing control risk too high

  4. Neither the likely rate of deviations nor the allowable risk

The correct answer is: Both the likely rate of deviations and the allowable risk of assessing control risk too high

When determining the number of documents to select for a test to ensure that sales returns are properly authorized, the auditor should consider both the likely rate of deviations and the allowable risk of assessing control risk too high. The likely rate of deviations refers to the expected frequency with which unauthorized sales returns occur within the population being tested. Understanding this helps the auditor gauge the inherent risks associated with the controls being tested. If past experience suggests a high likelihood of deviations, the auditor may need to select a larger sample size to adequately assess the effectiveness of the controls. On the other hand, the allowable risk of assessing control risk too high is a critical factor in audit sampling. This relates to the auditor's decision regarding how many errors can be tolerated without compromising the overall audit assurance. If there is a higher allowable risk, the auditor can afford to select a smaller sample size, while a lower allowable risk requires larger samples to ensure that the controls are working effectively and risks are managed. By considering both of these factors, the auditor can arrive at a well-reasoned and effective sample size that provides sufficient evidence regarding the authorization of sales returns, balancing both efficiency and reliability in the audit process. Thus, the integration of both the likely rate of deviations and the allowable risk ensures

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