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)
- 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_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_forward
- Listen 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_forwardAn 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
- You are auditing the accounts receivable for Conor Company as of December 31, 2022 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. The remaining 3 had the following comments: “We received $6,000 of goods on consignment on November 20, 2022. We have not sold them yet.” “We received these goods on January 5, 2023 and mailed a check on January 7, 2023.” “The balance of $2,000 was paid on December 10, 2022.” For each of these comments, identify the steps that you would take to clear (resolve) them.arrow_forwardThe auditor is testing receivables with the audit procedure the confirmation letters. Book value of the receivables ………… TL 3,500,000 Book value of the sample……………….. TL 2 ,500,000 Dollar amount of error in the sample…… TL 15,000. Dollar amount of anomaly error .................... TL 5, 000 What will be the projected misstatement for the receivables account? A. 20 000 B. 24 000 C. 26 000 26 000 D. 21 000arrow_forwardFraud detection has become an indispensable tool for banks and credit card companies to combat fraudulent credit card transactions. A fraud detection firm has detected minor fraudulent activities in 1.61% of transactions, and serious fraudulent activities in 0.83% of transactions. Assume that fraudulent transactions remain stable. a. What is the probability that there are minor fraudulent activities in fewer than 2 out of 100 transactions? Note: Do not round intermediate calculations. Round your final answer to 4 decimal places. Probability b. What is the probability that there are serious fraudulent activities in fewer than 2 out of 100 transactions? Note: Do not round intermediate calculations. Round your final answer to 4 decimal places. Probability 4arrow_forward
- Hardevarrow_forwardCurrent Attempt in Progress An auditor is testing accounts receivable for a client that has 1,000 customers with customer balances that range from $150 to $185,000. The auditor subdivided the receivables into three groups: group 1 has all customers with receivable balances between $185,000 and $100,000, group 2 has all customers with receivable balances between $100,000 and $25,000, and group 3 has all customers with receivable balances less than $25,000. The auditor then randomly selects customers out of each group. This is known as: O random selection. O haphazard selection. O block selection. O stratified sampling.arrow_forwardSee the image below. Please provide some solutions so that I can verify that I solved the problem correctly. Question: The overstatement of receivable from Lazaro isarrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub