EBK AUDITING & ASSURANCE SERVICES: A SY
11th Edition
ISBN: 9781260687668
Author: Jr
Publisher: MCGRAW-HILL LEARNING SOLN.(CC)
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Chapter 8, Problem 8.31P
To determine
Concept Introduction:
Audit sampling: sampling is the method of selecting few items to check from the entire population under examination. Auditors apply sampling method while performing their
To Justify: the conclusion about each control procedures
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General Attributes Sampling. Frazier Holyfield, a new staff accountant, is evaluatingimportant controls over the revenue cycle and, more specifically, assessing the operatingeffectiveness of the control that all shipments made to customers by Top Rank Inc. havebeen properly invoiced.Required:Comment on the following actions that Holyfield performed. You should evaluate eachaction independently of any other actions.a. Holyfield decided to inspect documentary evidence that all shipments made by Top Rankhave been invoiced by matching shipping documents with invoices. Accordingly, shehas identified the population from which she intends to sample as all sales invoices. TopRank has a computerized list of invoiced sales that she can use to select the appropriatesample.b. Because Holyfield plans to place a high degree of reliance on this particular control, sheassesses the risk of overreliance at 5 percent. In previous years, a 10 percent level wasused, but consultation with the engagement…
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Monetary Unit Sampling. Georgie Costanza, CPA, is auditing the accounts receivable of Vandalay Industries and is considering the use of MUS techniques. Costanza has a number of questions regarding the use of MUS and has asked you to provide answers to them.
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Chapter 8 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
Ch. 8 - Prob. 8.1RQCh. 8 - Prob. 8.2RQCh. 8 - Prob. 8.3RQCh. 8 - Prob. 8.4RQCh. 8 - Prob. 8.5RQCh. 8 - Prob. 8.6RQCh. 8 - Prob. 8.7RQCh. 8 - Prob. 8.8RQCh. 8 - Prob. 8.9RQCh. 8 - Prob. 8.10RQ
Ch. 8 - Prob. 8.11MCQCh. 8 - Prob. 8.12MCQCh. 8 - Prob. 8.13MCQCh. 8 - Prob. 8.14MCQCh. 8 - Prob. 8.15MCQCh. 8 - Prob. 8.16MCQCh. 8 - Prob. 8.17MCQCh. 8 - Prob. 8.18MCQCh. 8 - Prob. 8.19MCQCh. 8 - Prob. 8.20MCQCh. 8 - Prob. 8.21PCh. 8 - Prob. 8.22PCh. 8 - Prob. 8.23PCh. 8 - Prob. 8.24PCh. 8 - Prob. 8.25PCh. 8 - Prob. 8.26PCh. 8 - Prob. 8.27PCh. 8 - Prob. 8.28PCh. 8 - Prob. 8.29PCh. 8 - Prob. 8.30PCh. 8 - Prob. 8.31P
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- Attribute sampling enables the auditor to directly assess whether a rule is operating successfully or not, sampling is more reliable for assessing controls. This is crucial in circumstances where data accuracy or completeness are essential, such as when a credit-check control is used for consumer orders. The focus is on estimating the overall monetary value of a population, therefore monetary-unit sampling is more suitable for verifying the accuracy of financial statements or specific account balances. It is crucial to remember that the exact audit objectives and the type of data being checked will determine the sampling technique that is used. Do you believe monteray unit sampling can do the same thing?arrow_forwardComprehensive Attributes Sampling. Audra Dodge, CPA, is performing an attributessampling plan for her audit of Truck Company. In her audit of cash disbursements, she hasidentified preparing a voucher and marking it as “paid” prior to preparing and mailing acheck to the vendor as an important control. Dodge defined any voucher that was not markedas “paid” as being a deviation. In performing her sampling application, she established the following parameters:Risk of overreliance 5%Expected population deviation rate 1.5%Tolerable rate of deviation 4%Required:a. Identify what factors Dodge considered in establishing the risk of overreliance, expectedpopulation deviation rate, and tolerable rate of deviation.b. Assume that Dodge wished to place additional reliance on this control. How would thataffect the three parameters in part (a)?c. Based on the original parameters, use AICPA sample size tables to determine the appropriate sample size.d. If Dodge selected the sample size in part (c) and…arrow_forwardIn performing a test of controls for ABC, Inc., the auditor wants to know whether Sales order are approved before goods are picked, packed and shipped to customers. The CPAs has stipulated a Tolerable Deviation Rate (TDR) of 8 percent with a Risk of Assessing Control Risk too low of 5 percent. The CPA also anticipates a deviation rate of 2%. What type of sampling plan should the auditor use for this test? Attribute sampling Monetary samplingarrow_forward
- Assume that you are using attributes sampling to test the controlsover revenue recognition of the Packet Corporation, a public company.You will use the results as part of the evidence on which to baseyour opinion on internal controls and to determine what substantiveauditing procedures you should performed on revenue and accountsreceivable. You have decided to test the following controls and have setthe risk of overreliance at 5%, the tolerable deviation rate at 5%, and the expected deviation rate at 1%. A sample size of 100 is used. (Notethat this sample size is just rounded up from the sample size of 93 thatwould have been obtained from the appropriate table.) The results ofyour testing are as indicated here. a. Determine the upper limit of deviation for each of the controls.b. What impact do these results have on the type of opinion to begiven on the client’s internal controls?c. Indicate the potential misstatements that could result from thecontrol deviations.d. Determine what…arrow_forwardAssume that your audit assistants also performed tests of controls on a sample of 200 purchases. During the tests they found that 16 purchases did not comply with the control procedures as laid down. This gave a sample deviation rate of 8%. After performing the tests, the audit assistant noted the following conclusion: The deviation rate of 8% is below the quantitative materiality level of 10% as outlined in the accounting standards. Therefore, controls over purchases can be relied on'. Critically evaluate the appropriateness of the assistant's evaluation of sampling results relating to the tests of controls on purchases.arrow_forwardExplain why you agree or disagree with the following statement:“In most audits, it is more important to test carefully the cutoff for sales than forcash receipts.” Describe how you perform each type of test, assuming documents areprenumbered.arrow_forward
- Francona Madden, an audit manager, considered the control risk assessments listed in theleft column of the following table in evaluating A. Cardinal’s internal control over salestransactions. The sample sizes for the substantive procedures of the customer accountsreceivable are shown to the right of each control risk. What risk of overreliance (ROO)could be assigned for tests of controls at each control risk level? Control Risk Accounts Receivable Sample ROO 0.20 400 ? 0.50 390 ? 0.80 350 ? 0.90 190 10% a. From top to bottom: 5 percent, 10 percent, 1 percent.b. From top to bottom: 10 percent, 1 percent, 5 percent.c. From top to bottom: 1 percent, 10 percent, 5 percent.d. From top to bottom: 1 percent, 5 percent, 10 percent.arrow_forwardIn an audit sampling application, an auditora. Performs procedures on all items in a balance and makes a conclusion about the entirebalance.b. Performs procedures on less than 100 percent of the items in a balance and formulates aconclusion about the entire balance.c. Performs procedures on less than 100 percent of the items in a class of transactions tobecome familiar with the client’s accounting system.d. Performs analytical procedures on the client’s unaudited financial statements when planning the audit.arrow_forwardYou are auditing Big Fresh Pty Ltd, and your manager has asked you to perform the following for the revenue account. Select a sample of sales from the sales journal and agree on the details in the journal to the sales invoices, delivery dockets and customer orders. Required: Explain which assertion for the revenue account would be addressed by this test and why? What kind of test of details is this? Any other assertion is provided by the above test apart from in part A.arrow_forward
- General Sampling. The accounting firm of Mason & Jarr performed the work described ineach of the following separate cases. The two partners are worried about properly applyingauditing standards regarding sampling. They have asked your advice.Required:Write a report addressed to Mason & Jarr stating whether they did or did not observe theessential elements of auditing standards in each case. When applicable, refer to the appropriate professional standards regarding audit sampling.a. Mason selected three purchase orders for the purchase of raw materials from LIZ Corporation’s files. He started at the beginning in the accounting process and traced each onethrough the accounting system. He saw the receiving reports, purchasing agent’s approvals, receiving clerks’ approvals, vendors’ invoices (now stamped PAID), entry in the cashdisbursement records, and canceled checks. This work gave him a first-hand familiaritywith the cash disbursement system, and he felt confident about…arrow_forwardSample Size Determination. Jule Phillips is examining the internal control of CowboyCompany and has identified the mathematical verification of sales invoices as an importantcontrol and decided to test this control. Based on a discussion with Cowboy’s management,Phillips determined that Cowboy Company’s employees were required to indicate their compliance with this control by writing their initials in an appropriate place on the invoice copy.Assume that Phillips established an acceptable risk of overreliance of 5 percent, anexpected population deviation rate of 3 percent, and a tolerable rate of deviation of 9 percent.Required:a. Using AICPA sample size tables, determine the appropriate sample size.b. Indicate how Phillips would assess the three parameters that are used to determine sample size (risk of overreliance, expected population deviation rate, and tolerable rate ofdeviation).c. Use the original parameters but now assume that Phillips is willing to increase the acceptable risk…arrow_forwardIn order to determine whether accounts payable are understated, auditors wish to obtain a sample of purchase transactions from suppliers and how they were recorded in the accounting books. � , sampling is the best mechanism to obtain this type of samples. a . discovery b . attributes c . random digits d . variablesarrow_forward
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