Concept explainers
A
Introduction:
Requirement 1
To calculate : The sample size and sampling interval.
B
Introduction: Misstatement is an error part in the transaction area.
Requirement 2
Analyze each difference detection, if there is misstatement or not.
C
Introduction: Misstatement is defined as the difference between presentation, final amount and classification. The total estimated misstatement is the balance of the account.
Requirement 3
To calculate : Total estimated misstatement of the audit.
D
Introduction:Misstatement is defined as the difference between presentation, final amount and classification. The total estimated misstatement is the balance of the account.
Requirement 4
Discuss the nature of the
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Chapter 8 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- You are auditing the accounts receivable for Conor Company as of December 31, 2021. One of your procedures was to send positive confirmations to a sample of 50 accounts. Of those 50 confirmations, 40 have been positively confirmed without comments, 7 had minor differences that have been cleared satisfactorily. Two of the responses had the following comments: a. “We never received these goods.” b. “The balance of $1,000 was paid on December 15, 2021.” For each of these comments, identify the steps that you would take to clear (resolve) them.arrow_forwardAssume that a continuing audit client has recorded Accounts Receivable and Equipment both in the amount of $1,000,000. In a typical audit, which account would take more time to audit?arrow_forwardIn the audit of Checkers, Inc., a nonissuer, the auditor was assigned to a test of cash disbursements. The auditor randomly selected a sample of 75 items out of the 1,500 disbursements made. After completing the test procedures, the auditor determined that the sample contained several misstatements totaling $4,500. All of these were overstatements. The auditor then computed a projected misstatement of $90,000 $24,500 $337,500 $112,500 0000arrow_forward
- An auditor's analytical procedures have revealed that the accounts receivable of a client have doubled since the end of the prior year. However, the allowance for doubtful accounts, as a percentage of accounts receivable remained about the same. Which of the following client explanations most likely would satisfy the auditor? a. Credit standards were liberalized in the current year. b. Twice as many accounts receivable were written off in the prior year as compared to this year. c. A greater percentage of accounts were currently listed in the "more than 90 days overdue" category than in the prior year. d. The client opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.arrow_forwardAssume that you have audited accounts receivable as of 12/31/2020 and are confident that the ending balance should be $7,188,000. Further, you know that the audited balance as of 12/31/2019 was $8,462,000. You also verified cash deposits from customers through a review of the bank account. Based on that review you believe that cash receipts from customers ranges from an amount of $40,000,000 to $41,000,000. Which amount below would represent an overstatement of revenue for the year ending 12/31/2020, based on the facts above? 1. $38,500,000 2. $41,000,000 3. $39,762,000 4. $39,100,000arrow_forwardWhich of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? O Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. O Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions. O Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.arrow_forward
- The following are common tests of details of balances or analyticalprocedures for the audit of accounts receivable:1. Request 30 positive and 50 negative confirmations of accounts receivable.2. Select 10 customer accounts from the accounts receivable master file and trace tothe aged accounts receivable listing to verify name and amount.3. Select 10 customer accounts from the aged accounts receivable listing and trace tothe accounts receivable master file for name, amount, and aging categories.4. Obtain a list of aged accounts receivable, foot and cross-foot the list, and trace thetotal to the general ledger.5. Compute accounts receivable turnover for the current year and compare to theprior year.6. Perform alternate procedures on accounts not responding to second requests byexamining subsequent cash receipts documentation and shipping reports or salesinvoices.a. For each audit procedure, identify the balance-related audit objective or objectives itpartially or fully satisfies.b. In…arrow_forwardAn auditor is using PPS Sampling to determine the projected error in Accounts Receivable. Two errors were discovered: Error #1: Book Value of $400, Audit Value of $100 Error #2: Book Value of $6,000, Audit Value of $2,000 The Sampling Interval was $2,000 Total Projected Error is: a. $2,100 b. $2,833 c. $4,300 d. $2,300 e. $5,500arrow_forwardListen Time: 8 minutes For the following statements identify the assertion related to the risk of material misstatement. Explain your choice. Statement 1: "I am concerned that several of the significant accounts receivable balances on the Balance Sheet are uncollectible" Statement 2: "I am concerned that several of the revenue transactions that were recorded during the year didn't actually happen" Statement 3: "I am concerned that there is a significant unrecorded liability that should be recorded on the Balance Sheet" Statement 4: "I am concerned that assets that don't actually exist were recored on the Balance Sheet!" BIU Format tvarrow_forward
- An auditor discovers that a client’s accounts receivable turnover is substantially lowerfor the current year than for the prior year. This trend may indicate that(1) the client recently tightened its credit-granting policies.(2) employees have stolen inventory just before year-end.(3) fictitious credit sales have been recorded during the year.(4) an employee has been lapping receivables in both years.arrow_forwardJames Duffney, CPA, has randomly selected and audited a sample of 100 of Will-Mart’s accounts receivable. Will-Mart has 6,140 accounts receivable accounts with a total book value of $6,000,000. Duffney has determined that the account’s tolerable misstatement is $500,000. His sample results are as follows: Average audited value $962 Average book value 970 Required: Calculate the accounts receivable estimated audited value and projected misstatement using the: a. Mean-per-unit method. b. Ratio method. c. Difference method.arrow_forward. The true proportion of accounts receivable with some kind of error is 8 percent for Moby Group. If an auditor randomly samples 100 accounts receivable, a) is it acceptable to use the normal approximation to estimate the probability that fewer than two will contain errors? Explain your reasoning. b) what is the mean and standard deviation of errors? c) assume the auditor takes a sample of 150, what is the probability that less than 5 will contain errors?arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning