. STATEMENT 1: Random sampling is a selection method that aims to eliminate bias in the selection process. STATEMENT 2: Assume that the auditor wants to examine 50 sales invoice (sample size) from a population of 2000 sales invoice, the sampling interval using haphazard selection is 40 (2,000/50). A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct

. STATEMENT 1: Random sampling is a selection method that aims to eliminate bias in the selection process. STATEMENT 2: Assume that the auditor wants to examine 50 sales invoice (sample size) from a population of 2000 sales invoice, the sampling interval using haphazard selection is 40 (2,000/50). A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Monetary Unit Sampling with IDEA: Determining Sample Size. Assume that your audit team has established the following parameters for the examination of ELM’s sales transactions: Risk of incorrect acceptance 10% Tolerable misstatement $311,711 (or 8% of the recorded balance of the transactions) Expected misstatement $77,928 (or 2% of the recorded balance of the transactions) Required:a. Use IDEA to determine the necessary sample size, given the above parameters.Parts (b), (c), and (d) are independent scenarios that affect the sample size in this example.b. Assume that your audit team has decided to increase their reliance on internal controland permit a corresponding increase in the risk of incorrect acceptance from 10 percentto 15 percent, which maintains overall audit risk at the same level. What is the necessarysample size, holding all other factors constant?c. Assume that your audit team has decided to reduce the level of tolerable misstatementfrom $311,711 to $233,783 (or…
d. Assume that based on additional controls implemented by ELM, your audit team has decided to reduce the expected misstatement from $77,928 to $19,482 (0.5 percent of the recorded balance of the transactions). What is the necessary sample size, holding all other factors constant?
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STATEMENT 1: Nonstatistical sampling approach is determined based on pure judgment of the auditor. STATEMENT 2: The maximum rate of deviation that would support the auditor's planned assessed level of control risk is the expected error rate. A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct
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