Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Chapter 8, Problem 50RSCQ
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.
Q. If the auditor traces a sample of receiving reports to the inventory records, the auditor is testing the
control of validity. Options: A. True B. False
When the auditor uses monetary unit statistical sampling to examine the totaldollar value of invoices, each invoice(1) has an equal probability of being selected.(2) can be represented by no more than one monetary unit.(3) has an unknown probability of being selected.(4) has a probability proportional to its dollar value of being selected.
Chapter 8 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 8 - Prob. 1TFQCh. 8 - Prob. 2TFQCh. 8 - Prob. 3TFQCh. 8 - Prob. 4TFQCh. 8 - Prob. 5TFQCh. 8 - Prob. 6TFQCh. 8 - Prob. 7TFQCh. 8 - Prob. 8TFQCh. 8 - Prob. 9TFQCh. 8 - Prob. 10TFQ
Ch. 8 - Prob. 11TFQCh. 8 - Prob. 12TFQCh. 8 - Prob. 13TFQCh. 8 - Prob. 14TFQCh. 8 - Prob. 15MCQCh. 8 - Prob. 16MCQCh. 8 - Prob. 17MCQCh. 8 - Prob. 18MCQCh. 8 - Prob. 19MCQCh. 8 - Prob. 20MCQCh. 8 - Prob. 21MCQCh. 8 - Refer to Exhibit 8.6. Assume a 5% risk of...Ch. 8 - Prob. 23MCQCh. 8 - Prob. 24MCQCh. 8 - Prob. 25MCQCh. 8 - Prob. 26MCQCh. 8 - Prob. 27MCQCh. 8 - Prob. 28MCQCh. 8 - Prob. 29RSCQCh. 8 - Prob. 30RSCQCh. 8 - Prob. 31RSCQCh. 8 - Prob. 32RSCQCh. 8 - Prob. 33RSCQCh. 8 - Prob. 34RSCQCh. 8 - Prob. 35RSCQCh. 8 - Prob. 36RSCQCh. 8 - Prob. 37RSCQCh. 8 - Prob. 38RSCQCh. 8 - Prob. 39RSCQCh. 8 - Prob. 40RSCQCh. 8 - Prob. 41RSCQCh. 8 - Prob. 42RSCQCh. 8 - Prob. 43RSCQCh. 8 - Prob. 44RSCQCh. 8 - Prob. 45RSCQCh. 8 - Prob. 46RSCQCh. 8 - Prob. 47RSCQCh. 8 - What is stratification? Distinguish between...Ch. 8 - Prob. 49RSCQCh. 8 - Prob. 50RSCQCh. 8 - Prob. 51RSCQCh. 8 - Prob. 52RSCQCh. 8 - Prob. 53RSCQCh. 8 - Prob. 54RSCQCh. 8 - Prob. 55RSCQCh. 8 - Prob. 56RSCQCh. 8 - Prob. 57RSCQCh. 8 - Prob. 58RSCQCh. 8 - Prob. 59RSCQCh. 8 - Prob. 60RSCQCh. 8 - Prob. 61RSCQCh. 8 - Prob. 62RSCQCh. 8 - Prob. 63RSCQ
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- Which of the following audit procedures is the best test of the accuracy, valuation and allocation assertion for inventory? Select one: a. Obtaining the last receiving record numbers for the period and checking that they were taken up correctly b. Confirming stock held on consignment c. Comparing standard costs to actual sales prices. d. Attending the annual stocktakearrow_forwardWhich of the following timing of inventory count is the best based on the auditor’s point of view when the control risk is assessed at maximum and when there is a high inherent risk for the client? A. Inventory count just after year-endB. Inventory count at year-endC. Inventory count just before year-endD. All of the following are equal and the auditor can choose oneE. Inventory count must be done before year-end, at year-end and after year-endarrow_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_forward
- The 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_forwardAn auditor is determining the appropriate sample size for testing inventory valuation using MUS The population has 3,140 inventory items valued at Calculate the preliminary sample size. Select the formula, then enter the amounts and calculate the sample size. (Abbreviation used TM tolerable misstatement Enter amounts in the for (Click the icon to view the table for determining the confidence factor) Confidence Factor 4.33 TM as Percentage of Population Value 39.75 ECCEED Sample Sizearrow_forwardAn auditor discovered the following errors and irregularities while performing tests of controls: Inventory damaged by rain remains in inventory at full cost. Required: What control would have prevented or detected each of the aforementioned errors/irregularities? What tests should the auditor perform to test each control? To which financial statement assertion does the error or irregularity relate?arrow_forward
- 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
- You are testing inventory. You determined that inventory exists, nothing is missing from inventory, the calculations are done correctly, the valuation of the inventory is done properly, the inventory is also properly classified and presented in the financials. Can you be reasonably certain that the inventory is not materially misstated? Explain?arrow_forwardwhats the answer in question 1?arrow_forwardHow could the auditors have determined that the inventory balance was materially misstated? What changes to the audit plan would have been necessary to validate the existence and valuation of inventory?arrow_forward
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