In using difference estimation, an auditor took a random sampleof 100 inventory items from a large population to test for proper pricing. Several of theinventory items were misstated, but the combined net amount of the sample misstatementwas not material. In addition, a review of the individual misstatements indicated thatno misstatement was by itself material. As a result, the auditor did not investigate themisstatements or make a statistical evaluation. Explain why this practice is improper.
In using difference estimation, an auditor took a random sampleof 100 inventory items from a large population to test for proper pricing. Several of theinventory items were misstated, but the combined net amount of the sample misstatementwas not material. In addition, a review of the individual misstatements indicated thatno misstatement was by itself material. As a result, the auditor did not investigate themisstatements or make a statistical evaluation. Explain why this practice is improper.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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In using difference estimation, an auditor took a random sample
of 100 inventory items from a large population to test for proper pricing. Several of the
inventory items were misstated, but the combined net amount of the sample misstatement
was not material. In addition, a review of the individual misstatements indicated that
no misstatement was by itself material. As a result, the auditor did not investigate the
misstatements or make a statistical evaluation. Explain why this practice is improper.
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