Detailed Answer
(a) The requirement is to determine the circumstance
in which an auditor would decide to increase the level of the
preliminary assessment of control risk. Answer (a) is correct
because the assessment of control risk will increase when the
achieved upper precision limit (here 8%) exceeds the tolerable
rate (here 7%). Answer (b) is incorrect because the expected
deviation rate was 2 1/2%, not 7%. Also, if the expected
deviation rate is higher than the percentage of error in the
sample, the preliminary assessment does not need to be
increased. Answer (c) is incorrect because the achieved upper
precision limit will always exceed the percentage of errors in the
sample. Answer (d) is incorrect because, in circumstances in
which the auditor decides to sample the population, the expected
deviation rate will always be less than the tolerable rate.