Question

An auditor applying a discovery sampling plan with a 5% risk of overreliance may conclude that there is

A. A 95% probability that the actual rate of occurrence in the population is less than the critical rate if only one exception is found.
B. A 95% probability that the actual rate of occurrence in the population is less than the critical rate if no exceptions are found.
C. Greater than a 95% probability that the actual rate of occurrence in the population is less than the critical rate if no exceptions are found.
D. A 95% probability that the actual rate of occurrence in the population is less than the critical rate if the occurrence rate in the sample is less than the critical rate.

Answer 1

Option B is correct, as it states there is a 95% probability that the actual rate of occurrence in the population is less than the critical rate if no exceptions are found in a discovery sampling plan with a 5% risk of overreliance.

Step-by-step explanation:

An auditor applying a discovery sampling plan with a 5% risk of overreliance may conclude, with 95% probability, that the actual rate of occurrence in the population is less than the critical rate if no exceptions are found. This scenario is represented by option B. Discovery sampling is designed to provide evidence that the rate of occurrence of a certain event is below a certain threshold with a specified level of confidence.

When an auditor uses discovery sampling and does not find any exceptions in the sample, they can be 95% confident that the actual rate of defects in the entire population is below the critical rate determined before commencing the audit. However, if even one exception is found, the auditor cannot hold the same level of confidence regarding the rate of occurrence without further analysis. Therefore, the correct response to the question provided is option B, recognising the high level of assurance the auditor has about the results when no exceptions are encountered.