Reference no: EM133185523

Question - Results of control testing - The controls at a retail store were assessed by the lead auditor as being effective and the auditor intended to rely on the operative effectiveness of controls around payroll in determining the nature, timing and extent of substantive procedures. There is no evidence of fraud.

The control activities include controls that ensure that part-time staff are paid at the correct rate. The results of testing the relevant control are: sample size 40, tolerable deviation rate 5 per cent, exceptions noted: one instance of part-time staff paid an incorrect hourly rate.

Required -

(a) What is a 'tolerable deviation rate'?

(b) Explain why the 'exceptions' are evidence that the control did not work effectively in these cases.

(c) Explain in general terms what impact the control test results would have on the nature, timing and extent of substantive testing.