Question

When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why?

1) A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.
2) Deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions.
3) Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate.
4) A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement.

Answer 1

The auditor should consider that deviations from control procedures may not necessarily result in misstatements. Deviations and misstatements can occur on different transactions, and a recorded disbursement may still be properly authorized.

Step-by-step explanation:

When assessing the tolerable deviation rate, the auditor should consider that deviations from control procedures may not necessarily result in misstatements. One reason for this is that a recorded disbursement that does not show evidence of required approval may still be properly authorized and recorded. Another reason is that deviations would result in errors in accounting records only if the deviations and misstatements occurred on different transactions. Lastly, deviations from control procedures at a given rate would be expected to result in misstatements at a higher rate.