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CS Professional · Internal and Forensic Audit · Internal Audit Tools and Techniques

While testing 60 sampled payment vouchers at Kaveri Pharma Ltd, the internal auditor finds that 3 lack the second authorisation signature required by policy. The tolerable deviation rate set by the auditor was 2 percent. What is the most appropriate conclusion?

The sample deviation rate is 3 out of 60, or 5 percent, which is above the 2 percent tolerable rate. The auditor should therefore reduce reliance on the control or extend testing, and report the weakness, rather than treating the control as effective.

  1. AThe sample deviation rate of 5 percent exceeds the tolerable rate, so control reliance should be reduced or tests extendedCorrect
  2. BThe control is effective because only 3 vouchers failed
  3. CThe sample is too small to draw any conclusion, so the findings must be ignored
  4. DThe deviation rate of 5 percent is below the tolerable rate, so the control is effective

Explanation

Deviation rate = 3/60 = 5 percent. This exceeds the 2 percent tolerable rate, so the auditor cannot rely on the control without extending testing or modifying procedures. The option saying 5 percent is below 2 percent is arithmetically wrong.

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