How is expected rate of deviation useful ,when put tolerable rate of deviation ,at the time of selection of sample size ?
The expected deviation rate represents the auditor's best estimate of the actual failure rate of a control in a population. 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. Usually you need to compare the upper deviation rate (actual sample deviation rate + allowance for sampling risk) to the tolerable rate to determine whether the control is reliable. The reason to use the expected rate is to determine your sample size (the more deviations you expect the greater the sample size needed).
Can u explain upper deviation rate
The upper deviation rate is the sum of the sample deviation rate and an appropriate allowance for sampling risk. For example, if the auditor discovered two deviations in a sample of 50, the deviation rate in the sample would be 4% (2 Ã·50). upper deviation rate = 4%+sampling risk. The auditor compares the tolerable deviation rate to the computed upper deviation rate. If the computed upper deviation rate is less than the tolerable deviation rate, the auditor can conclude that the controls can be relied uponâ?¢If the computed upper deviation rate exceeds the tolerable deviation rate, the auditor must conclude that the controls are not operating at an acceptable level.