Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 9, Problem 35QRA
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Indicate whether you agree or disagree with the following statements and explain your reasoning.
Joseph Cabana was explaining to Carl Metz how sampling risk works for the audit team: "Non-
sampling risk is the risk that as auditors we will arrive at a conclusion that has nothing to do with
sampling issues."
Kendal Clarke was auditing the miscellaneous expense account. She decided to chose every
transaction that had a value of $20,000 or higher. Kendal is performing a statistical sampling
technique known as systematic selection.
Melissa Wilson had concluded that control risk was low for her audit client. Therefore, she decided
that the most appropriate audit strategy was a combined audit strategy.
Evan Kristopher, CPA intends to use probability-proportional-to-size sampling. He has properly selected and audited a sample of 100 accounts receivable from his client’s population of 3,000 accounts. He calculated a sampling interval of $6,000 and the tolerable misstatement for the account is $30,000.
Evan also recalls that “basic precision” is equal to the appropriate reliability factor multiplied times the sampling interval. He wishes to accept a risk of incorrect acceptance of 10%.
He found that 97 of the 100 accounts in the sample were properly calculated. However, the following three errors existed:
Book Value
Audited Value
$75
$70
1,000
750
9,300
6,720
Required:
Calculate the projected misstatement.
Calculate the basic precision.
Calculate the incremental allowance.
Calculate the upper limit on misstatement.
What would the auditors’ conclusion be for the population based on the analysis?
explain please
Evan Kristopher, CPA intends to use probability-proportional-to-size sampling. He has properly selected and audited a sample of 100 accounts receivable from his client’s population of 3,000 accounts. He calculated a sampling interval of $6,000 and the tolerable misstatement for the account is $30,000.
Evan also recalls that “basic precision” is equal to the appropriate reliability factor multiplied times the sampling interval. He wishes to accept a risk of incorrect acceptance of 10%.
He found that 97 of the 100 accounts in the sample were properly calculated. However, the following three errors existed:
Book Value
Audited Value
$75
$70
1,000
750
9,300
6,720
Required:
Calculate the projected misstatement.
Calculate the basic precision.
Calculate the incremental allowance.
Calculate the upper limit on misstatement.
What would the auditors’ conclusion be for the population based on the analysis?
Chapter 9 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 9 - Prob. 1RQCh. 9 - Prob. 2RQCh. 9 - Prob. 3RQCh. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 8RQCh. 9 - Prob. 9RQCh. 9 - Prob. 10RQ
Ch. 9 - Prob. 11RQCh. 9 - Prob. 12RQCh. 9 - What is a dual-purpose test?Ch. 9 - Prob. 14RQCh. 9 - Prob. 15RQCh. 9 - Prob. 16RQCh. 9 - What would be the difference between an attributes...Ch. 9 - Prob. 18RQCh. 9 - Prob. 19RQCh. 9 - Prob. 20RQCh. 9 - Prob. 21RQCh. 9 - Prob. 22RQCh. 9 - Prob. 23RQCh. 9 - Prob. 24RQCh. 9 - Prob. 25RQCh. 9 - Prob. 26RQCh. 9 - Prob. 27RQCh. 9 - Prob. 28RQCh. 9 - Prob. 29QRACh. 9 - Prob. 30QRACh. 9 - Prob. 31QRACh. 9 - Prob. 32QRACh. 9 - Prob. 33QRACh. 9 - Prob. 34QRACh. 9 - Prob. 35QRACh. 9 - Prob. 36QRACh. 9 - Prob. 37AOQCh. 9 - Prob. 37BOQCh. 9 - Prob. 37COQCh. 9 - Prob. 37DOQCh. 9 - Prob. 37EOQCh. 9 - Prob. 37FOQCh. 9 - Prob. 37GOQCh. 9 - Prob. 37HOQCh. 9 - Prob. 37IOQCh. 9 - Prob. 37JOQCh. 9 - Prob. 37KOQCh. 9 - Prob. 37LOQCh. 9 - Prob. 38OQCh. 9 - Prob. 39OQCh. 9 - For each term in the first column below, identify...Ch. 9 - Prob. 41OQCh. 9 - Smith, Inc. Rachel Robertson wishes to use...Ch. 9 - Prob. 43OQCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Prob. 46PCh. 9 - Prob. 47PCh. 9 - In the audit of Potomac Mills, the auditors wish...Ch. 9 - Prob. 49PCh. 9 - Prob. 50PCh. 9 - Prob. 51PCh. 9 - Prob. 52ITC
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- An auditor had decided to use probability-proportional-to-size (PPS) sampling, also called dollar-unit or cumulative monetary unit (CMU) sampling, in the audit of the client’s accounts receivable balance. The auditor discovered 3 misstatements while doing their testing. Complete the spreadsheet below and calculate the total projected misstatement.arrow_forwardMonetary 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. Required:a. Under generally accepted auditing standards, can Costanza use nonstatistical sampling inthe examination of Vandalay accounts receivable?b. What are the advantages to using statistical sampling in the audit?c. What are the risks associated with sampling, and to what type of losses do they exposeCostanza?d. How does Costanza establish the appropriate level of the risk of incorrect acceptance?e. Is Costanza permitted to specify that certain items be examined, or do all items need tobe randomly selected?f. How can Costanza increase the likelihood that the items in the sample are representativeof the population?g. Other than the dollar amount of the misstatements, are any other factors important forCostanza to consider with…arrow_forwardd. Assume that based on additional controls implemented by ELM, your audit team has decided to reduce the expected misstatement from $77,928 to $19,482 (0.5 percent of the recorded balance of the transactions). What is the necessary sample size, holding all other factors constant?arrow_forward
- Evaluating a Sampling Application. Tom Barton, an assistant accountant with a local CPAfirm, recently graduated from Other University. He studied statistical sampling for auditing in college and wants to impress his employers with his knowledge of modern auditingmethods.Barton decided to select a random sample of payroll checks for the test of controls usinga tolerable rate of deviation of 5 percent and an acceptable risk of overreliance of 5 percent. The senior accountant told Barton that 2 percent of the checks audited last year hadone or more errors in the calculation of net pay. He decided to audit 100 random checks.Because supervisory personnel had paychecks with higher amounts than production workers, he selected 60 of the supervisor checks and 40 checks of the others. He was very carefulto see that the selections of 60 from the April payroll register and 40 from the August payrollregister were random.The audit of this sample yielded two deviations, exactly the 2 percent rate…arrow_forwardThe auditors of Landi Corporation wish to use a structured approach to nonstatistical sampling to evaluate the reasonableness of the accounts receivable. Landi has 15,000 receivable accounts with a total book value of $2,500,000. The auditors have assessed the combined level of inherent and control risk at a moderate level and believe that their other substantive procedures are so limited as to require a “maximum” risk assessment. After considering the overall audit plan, the auditors believe that the test’s tolerable misstatement is $57,500. Use figure below to determine the reliability factor. Please calculate the sample size. Risk That Other Substantive Procedures Will Fail to Detect a Material Misstatement Combined Assessment of Inherent and Control Risk Maximum Moderate Low Maximum 3.0 2.3 1.9 Slightly below Maximum 2.7 2.0 1.6 Moderate 2.3 1.6 1.2 Low 1.9 1.2 1.0arrow_forwardAttribute 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_forward
- Which of the following courses of action would an audit team most likelyfollow in planning a sample of cash disbursements if the audit team is aware of several unusually large cash disbursements?a. Increase the sample size to reduce the effect of the unusually large disbursements.b. Continue to draw new samples until all unusually large disbursements appear in the sample.c. Set the tolerable deviation rate at a lower level than originally planned.d. Stratify the cash disbursements population so that the unusually large disbursements are selected.arrow_forwardPlease answer asaparrow_forwardSelect the necessary words from the list of possibilities to complete the following statements. 1. 2. 7. Inherent in the use of sampling is representative of the population. 9. When the auditors estimate sampling risk using professional judgment rather than by using the laws of probability, they are said to be using. sampling. an item from the population may be selected two or more times for inclusion in the When using sample. The term 3. 4. 5. In performing tests of controls, the auditors are primarily concerned with the risk of assessing 6. To use attributes sampling tables, the auditors must stipulate the desired risk of assessing control risk too low, the expected deviation rate in the population, and the desired Statements risk which is the possibility of selecting a sample that i not refers to the process of dividing a population into relatively homogeneous subgroups. sampling is usually used in situations in which the auditors expect a very low rate of occurrence of some…arrow_forward
- Carson Allister is performing a PPS application in the audit of Bird Company’s accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a sample size of 75 items and a sampling interval of $25,000. After examining the sample items, the following misstatements were identified: (Use Exhibit F.A.2.) Item Recorded Balance Audited Value 1 $35,000 $28,000 2 10,000 8,000 3 6,000 3,000 Required: Calculate the upper limit on misstatements for Bird Company’s accounts receivable.arrow_forwards1: The only way to know with certainty whether a sample Is representative is to subsequently audit the entire population. s2: One way to control sampling risk is to increase the sample size. s3: Sampling risk results from the auditor's failure to recognize exceptions in transaction data. A. all statements are true b. all statements are false c. s1 and s2 are true d. s1 and s3 are truearrow_forwardBlake and Caroline, two audit managers assigned to the audit of Legolas Enterprises are discussing samples and sample sizes in conjunction with the audit of the client's system of internal control. Blake mentions that back in college when he took an auditing class, he recalled the professor saying that audit sample size was tied to the level of assurance that the auditor ultimately wished to obtain. Which of the following responses by Caroline is most likely to help Blake understand this connection? O The professor was mistaken. There really isn't any relationship between the level of assurance the auditor wishes to obtain and the sample sizes used in an audit. O Although there is a definite relationship between desired level of assurance and sample size, most auditors simply audit the population of interest when they wish to increase the desired level of assurance. O Generally speaking, if an auditor wishes to increase the desired level of assurance, he or she will typically increase…arrow_forward
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