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An auditor tests a random sample of 60 sales transactions, out of 10,000 sales transactions in the population, and finds one error. (Applied materiality is
An auditor tests a random sample of 60 sales transactions, out of 10,000 sales transactions in the population, and finds one error. (Applied materiality is 5% of the sales balance.) The audit manager says that this means that there is not a material amount of error in the account, because one error out of 60 is only a 1.66% error rate, which is less than 5%. Is the audit manager correct?
- Yes
- No, more testing is needed because with one error in the sample, the upper bound of error at the 95% confidence level is greater than 5%.
- Yes, but only at the 90% confidence level, not the 95% confidence level
- We dont know; it depends on the dollar amount of the transactions tested
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