Question

An auditor has to make a number of decisions when using attribute sampling. The term efficiency is used to describe anything that affects sample size. The term effectiveness is used to describe the likelihood that the statistical sample result will be a more accurate estimate of the true population error rate. Assume an auditor expects a control procedure failure rate of 0.5%. The auditor is making a decision on whether to use a 90% or a 95% confidence level and whether to set the tolerable control failure rate at 3% or 4%. Which of the following statements regarding efficiency and effectiveness of an attribute sample is true?

A. Decreasing the tolerable failure rate from 4% to 3% will increase audit efficiency.
B. Increasing the confidence level to 95% will increase audit efficiency.
C. Decreasing the confidence level to 90% and decreasing the tolerable control failure rate to 3% will result in both increased efficiency and effectiveness.
D. Increasing the confidence level to 95% and decreasing the tolerable control failure rate to 3% will increase audit effectiveness.

Answer 1

Option D is correct: increasing the confidence level to 95% and decreasing the tolerable control failure rate to 3% will increase audit effectiveness. Higher confidence levels and lower tolerable rates mean the auditor is seeking more precise estimates, thus improving the sample's ability to reflect the true control procedure's failure rate effectively.

Step-by-step explanation:

When considering the efficiency and effectiveness of an attribute sample in auditing, one must recognize how changes in confidence levels and tolerable failure rates impact these measures. Efficiency in audit sampling relates to the sample size, while effectiveness is about the accuracy of the estimate of the population error rate. To increase efficiency, auditors generally aim to reduce the sample size without compromising the accuracy of the results. On the other hand, increasing effectiveness usually means improving the likelihood that the sample accurately reflects the true state of the population, even if it requires a larger sample size.

For the given statements:

• 
  
• 
  
• 
  
• 
  

Summary: Option D is the correct statement, reflecting that higher confidence levels and stricter tolerable failure rates lead to increased effectiveness in an audit sample.