Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
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Question
Chapter 8, Problem 22RQSC
To determine
Introduction: The total misstatement is the sum of the top-stratum misstatement and lower-stratum misstatement.
Requirement 1
To calculate: Calculate the total misstatement.
To determine
Introduction:Tolerable limit of misstatement is the maximum limit to control the risk of the audit in account transaction section.
Requirement 2
Clarify the above result when tolerable misstatement is $25,000.
To determine
Introduction:The results are not acceptable when the tolerable limit is lower than the actual misstatement.
Requirement 3
Possible actions taken by the auditor when results are not acceptable.
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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.
(please answer a, b)
g on
You are working on the testing of internal controls over price changes in the inventory system. You completed the controis testing to
determine whether all price changes were approved by the senior accountant, by reference to master file change forms. In order to
place reliance on this control, your audit supervisor has decided that the error rate in the population should be less than 1%. When you
calculated your sample size, you used a confidence level of 90% and predicted an error rate of less than one percent. Based on these
decisions, you examined 150 inventory price master file change forms. In your testing, you uncovered two deviations. Based on these
results, you calculate that the actual error rate in the population could be as high as 2.33%.
Required:
A. What actions are available to you regarding your planned reliance on the master file change controls?
B. What are the advantages and disadvantages of each action?
C. How would you decide which action to take?
To assist in…
Chapter 8 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
Ch. 8 - Prob. 1CYBKCh. 8 - Prob. 2CYBKCh. 8 - Prob. 3CYBKCh. 8 - Prob. 4CYBKCh. 8 - Prob. 5CYBKCh. 8 - Prob. 6CYBKCh. 8 - Prob. 7CYBKCh. 8 - Prob. 8CYBKCh. 8 - Prob. 9CYBKCh. 8 - Prob. 10CYBK
Ch. 8 - Prob. 11CYBKCh. 8 - Prob. 12CYBKCh. 8 - Prob. 13CYBKCh. 8 - Prob. 14CYBKCh. 8 - Prob. 15CYBKCh. 8 - Prob. 16CYBKCh. 8 - Prob. 17CYBKCh. 8 - Prob. 18CYBKCh. 8 - Refer to Exhibit 8.6. Assume a 5% risk of...Ch. 8 - Prob. 21CYBKCh. 8 - Prob. 22CYBKCh. 8 - Prob. 23CYBKCh. 8 - Prob. 24CYBKCh. 8 - Prob. 25CYBKCh. 8 - Prob. 26CYBKCh. 8 - Prob. 27CYBKCh. 8 - Prob. 28CYBKCh. 8 - Prob. 29CYBKCh. 8 - Prob. 30CYBKCh. 8 - Prob. 31CYBKCh. 8 - Prob. 32CYBKCh. 8 - Prob. 33CYBKCh. 8 - Prob. 34CYBKCh. 8 - Prob. 35CYBKCh. 8 - Prob. 36CYBKCh. 8 - Prob. 37CYBKCh. 8 - Prob. 38CYBKCh. 8 - Prob. 39CYBKCh. 8 - Prob. 1RQSCCh. 8 - Prob. 3RQSCCh. 8 - Prob. 4RQSCCh. 8 - Prob. 5RQSCCh. 8 - Prob. 6RQSCCh. 8 - Prob. 7RQSCCh. 8 - Prob. 8RQSCCh. 8 - Prob. 9RQSCCh. 8 - Prob. 10RQSCCh. 8 - Prob. 11RQSCCh. 8 - Prob. 12RQSCCh. 8 - Prob. 13RQSCCh. 8 - Prob. 14RQSCCh. 8 - Prob. 15RQSCCh. 8 - Prob. 16RQSCCh. 8 - Prob. 17RQSCCh. 8 - Prob. 18RQSCCh. 8 - Prob. 19RQSCCh. 8 - What is stratification? Distinguish between...Ch. 8 - Prob. 21RQSCCh. 8 - Prob. 22RQSCCh. 8 - Prob. 23RQSCCh. 8 - Prob. 24RQSCCh. 8 - Prob. 25RQSCCh. 8 - Prob. 26RQSCCh. 8 - Prob. 27RQSCCh. 8 - Prob. 28RQSCCh. 8 - Prob. 29RQSCCh. 8 - Prob. 30RQSCCh. 8 - Prob. 31RQSCCh. 8 - Prob. 32RQSCCh. 8 - Prob. 33RQSCCh. 8 - Prob. 36RQSCCh. 8 - Prob. 37RQSC
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
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- You are evaluating audit results for current assets for your audit client Pepper Ltd. You take a random sample of inventory items worth $10,000 for price test and detect $1,000 worth of overstatements. The total carrying value of inventory is $100,000 and sampling error is $2,000. What is the total estimated misstatement for inventory account?arrow_forwardIn testing for lower-of-cost-or-market, the auditor is gathering evidence to support which of the following assertions? a. Accuracy. b. Rights and obligations. c. Valuation. d. Pricing.arrow_forwardThe preliminary judgement about materiality is the ______________ amount by which the auditor believes the statements could be misstated and still not affect the economic decisions of users. The missing word in this sentence is: a. Average b. Minimum c. Maximum d. Medianarrow_forward
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- Which one of the sentences below is FALSE? A. The risk of incorrect acceptance called beta risk has the consequence that the auditor may assume that the population is free of material misstatement. B. The risk of incorrect rejection is called alpha risk and has the consequence that the auditor may assume on the basis of sample results that a population is materially misstated when, in fact, it is not . C. The risk of incorrect acceptance is called beta risk. D. The risk of incorrect rejection very common in audit sampling is called beta risk.arrow_forwardThe accuracy, valuation and allocation assertion of inventory is of key interest to the auditor because: Question 18 options: 1) the valuation of inventory is usually complex. 2) inventory is more likely to be understated than overstated. 3) it is difficult to obtain evidence for this assertion. 4) All of the above.arrow_forwardWhat type of substantive testing (not test of controls) should be used for each of the following accounts? 1. Inventory 2. Accounts Payable 3. Sales Revenuearrow_forward
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