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what is tolerable exception rate

by Ms. Linnea Watsica Published 3 years ago Updated 3 years ago

Exception rate is the maximum rate of compliance exceptions that is or can be tolerated by auditors. Program materiality is what defines tolerable exception rate for most types of compliance and its’ requirements. Materiality is considered in relation to each major program.

Exception rate is the maximum rate of compliance exceptions that is or can be tolerated by auditors. Program materiality is what defines tolerable exception rate for most types of compliance and its' requirements. Materiality is considered in relation to each major program.Jan 18, 2016

Full Answer

What is the tolerable exception rate for a compliance sample?

The tolerable exception rate for a compliance sample testing nonmonetary compliance attributes as well as monetary compliance attributes is normally equal to or lowers than the level of materiality for expressing an opinion on the auditee’s compliance with requirements having a direct and material effect on each major program.

What is an exception rate?

Definition: Exception Rate. Exception rate is the maximum rate of compliance exceptions that is or can be tolerated by auditors.

What is tolerable rate in auditing?

The maximum population deviation rate the auditor is willing to accept without altering the planned assessed level of control risk. For example, a low (3–7%) rate might be used if substantial reliance on the control is planned. The tolerable rate is inversely related to sample size.

What is tolerable deviation rate?

The tolerable deviation rate is the largest percentage variance experienced in audit sampling that an auditor will accept in order to rely upon a specific control. If the deviation rate is higher than this threshold value, then the auditor cannot rely upon the control.

What should be the tolerable deviation rate?

On the other hand, if the sample includes, for example, two or more deviations, the auditor may conclude that there is an unacceptably high sampling risk that the rate of deviations in the population exceeds the tolerable rate of 5 percent. An auditor applies professional judgment in making such an evaluation.

What is tolerable deviation rate in auditing?

(j) Tolerable rate of deviation – A rate of deviation from prescribed internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population.

What is tolerable error in sampling?

Tolerable error is the maximum error in the population that auditors are willing to. accept and still conclude that the audit objective has been achieved. Tolerable error is considered during the planning stage and, for substantive procedures, is related to the auditors' judgment about materiality.

What can an auditor do when CUER exceeds ter?

If the CUER exceeds the TER, the auditor must first determine if the sample is representative.

What is tolerable rate?

Tolerable rate. The maximum population deviation rate the auditor is willing to accept without altering the planned assessed level of control risk. For example, a low (3–7%) rate might be used if substantial reliance on the control is planned. The tolerable rate is inversely related to sample size.

How is tolerable error calculated in auditing?

According to Yamane (1967), the sample size is obtained thus:n = N /1+ N (e2)Where:n = Sample sizeN = Actual population = 12,396 e = Tolerable error = 5%N = 12,3961+ [12,396x (0.052)]= 12,3961+ (12,396 x 0.0025)= 12,3961+ 30.99= 387.5 Approximately 388 Sample size (n) = 388 SMES OwnersA simple random sampling technique ...

How do you calculate tolerable error?

In determining tolerable misstatement and planning and performing audit procedures, the auditor should take into account the nature, cause (if known), and amount of misstatements that were accumulated in audits of the financial statements of prior periods.

What is the difference between materiality and tolerable error?

An item is material if its omission or misstatement could reasonably be expected to affect the economic decisions of an addressee of the audit report. Tolerable error for tests of control is the maximum deviation from the control procedure before auditors reassess the control risk.

What does tolerable misstatement mean?

A tolerable misstatement is the amount by which a financial statement line item can differ from its true amount without impacting the fair presentation of the entire financial statements. The concept is used by auditors when designing audit procedures to examine the financial statements of a client.

How do you calculate CUER?

Calculate CUER From the result of the test, then we can determine CUER for each attribute. CUER is calculated from statistic table, by looking number of exception founds and number of sampel, with ARACR 5%.

What is the difference between statistical and Nonstatistical sampling?

Statistical versus non-statistical sampling Statistical sampling allows each sampling unit to stand an equal chance of selection. The use of non-statistical sampling in audit sampling essentially removes this probability theory and is wholly dependent on the auditor's judgment.

What is the acceptable risk of overreliance?

Acceptable risk of overreliance refers to the review of tolerable misstatements and acceptance of only the effective procedures.

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