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

Which statement is accurate concerning statistical sampling in tests of controls?

1. There is an inverse relationship between expected population deviation rate and sample size

2. As population size increases, sample size should increase proportionately

3. Deviations from control activities lead to misstatements at a lower rate

4. In determining tolerable rate, an auditor considers detection risk and sample size

The correct answer is: Deviations from control activities lead to misstatements at a lower rate

The statement that deviations from control activities lead to misstatements at a lower rate is accurate in the context of statistical sampling in tests of controls. This reflects the principle that while control deviations can occur, they do not necessarily correlate directly to a proportionate increase in misstatements. Instead, the relationship suggests that controls, when effective, limit the extent of misstatements. In statistical sampling, auditors evaluate control activities to determine their effectiveness. When controls are functioning as intended, deviations are expected to be low, thereby implying a reduced probability that those deviations will lead to significant misstatements. This understanding is essential in risk assessment and determining the extent of substantive procedures required, as auditors can rely on effective controls to reduce the risk of material misstatements. The other statements do not accurately reflect the principles of statistical sampling. The relationship between expected population deviation rate and sample size is typically direct rather than inverse; larger populations do not necessarily dictate a proportionate increase in sample size; and the determination of tolerable rate involves considerations such as expected deviation rate and the desired assurance level rather than solely detection risk and sample size. Hence, the choice emphasizing the impact of control deviations on misstatements aligns most accurately with the principles of auditing and risk assessment.