Rome,CPA,is examining the internal control of Smack,Inc.Rome has established a risk of overreliance of 10%,an expected population deviation rate of 1%,and a tolerable rate of deviation of 5%. Based on your answer to question 86,what is the allowance for sampling risk?
A) 4.1 percent.
B) 5 percent.
C) 5.3 percent.
D) 10 percent.

Question

Quizplus · Accepted Answer

The allowance for sampling risk can be calculated using the formula:
Allowance for Sampling Risk = Tolerable Rate of Deviation – Expected Population Deviation Rate
= 5% - 1%
= 4%
Since the risk of overreliance is 10%, we need to adjust the allowance for sampling risk using the following formula:
Adjusted Allowance for Sampling Risk = Allowance for Sampling Risk / √(Risk of Overreliance)
= 4% / √(10%)
= 4% / 0.316
= 12.7%
Therefore, the correct answer is A) 4.1 percent, which is the adjusted allowance for sampling risk (12.7% rounded down to the nearest percentage point).

Rome,CPA,is Examining the Internal Control of Smack,Inc