Final answer:
A deviation rate is typically expressed as a percentage indicating how often a control fails in a sample, which helps auditors to evaluate the effectiveness of internal controls. It is distinct from the standard deviation, a statistical measure of variation in a data set.
Step-by-step explanation:
The student's question relates to a deviation rate in the context of auditing financial statements. Firstly, a deviation rate is normally expressed as a percentage, representing the rate of deviation of performance of a tested control in a sample. This does not necessarily indicate a misstatement of the financial statements; rather, it pinpoints to the instances where the applied internal control did not operate as intended. The deviation rate is crucial for auditors to assess the effectiveness of controls and to plan the nature, timing, and extent of further auditing procedures.
Secondly, while a deviation may be based on historical data, it does not necessarily represent the expected rate in which the control is not working; historical rates are used as a reference point. Deviation rates can help assess the risk of material misstatement in the financial statements.
Lastly, the standard deviation is a related concept, though distinct from the deviation rate in auditing. The standard deviation of a probability distribution is a statistical measure that indicates how much the outcomes of a statistical experiment diverge from the mean of the distribution, providing a numerical measure of the overall amount of variation in a data set.