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 36QRA
To determine
Calculate the
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An auditor is going to choose a sample of accounts receivable balances at year end to test and has determined the appropriate sampling interval to be 4 with a random start of the second balance in the list. Presented below are the first 10 accounts in the list (in order). Determine the first 2 account balances (including the random start) that will be sampled and tested using the sampling interval.
Beads Galore $678
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Regal Beads $567
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The Bead Place $870
The Bead Place Too $450
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A CPA company is conducting the audit of Finch Hardware Company for the year ended December 31. The senior-in-charge of the audit plans to use MUS to audit Finch’s inventory account. The balance at December 31 was $9,000,000, tolerable misstatement is $360,000, expected misstatement is $90,000, and the risk of incorrect acceptance is 5%. Compute the required MUS sample size and sampling interval using Table 8-5 in the textbook (round your interval answer to the nearest whole number).
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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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- Sample Size and Sampling Interval Determination: Monetary Unit Sampling. BlytheDrake is conducting an audit of Newman and is using MUS to select a sample of customer accounts receivable for confirmation. Newman’s accounts receivable are recorded at$10,000,000 and comprise 2,000 customer accounts. Drake has established the followingparameters for the investigation:∙ Risk of incorrect acceptance = 5%.∙ Tolerable misstatement = $250,000.∙ Expected misstatement = $50,000.Required:a. Determine the sample size and sampling interval that Drake used in the audit of Newman’s accounts receivable.b. Based on the calculations in part (a), briefly describe how Drake would select customeraccounts from the population of accounts receivable balances for confirmation.c. Holding all other factors constant, determine the sample size and sampling intervalassuming each of the following independent changes in Drake’s sampling parameters:1. Because of improvements in Newman’s internal control policies…arrow_forwardUpper Limit on Misstatements Calculation: Monetary Unit Sampling. Carson Allister is performing an MUS 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: Item Recorded Balance Audited Value 1 $35,000 $28,000 2 10,000 8,000 3 6,000 3,000 Required:a. Calculate the upper limit on misstatements for Bird Company’s accounts receivable.b. Provide a brief description of the meaning of the upper limit on misstatements calculatedin part (a).c. What would Allister’s conclusion be with respect to the fairness of Bird’s accountsreceivable balance?arrow_forwardSample Size Relationships: Monetary Unit Sampling. Noel Frehley is examining theaccounts receivable of Kiss Company and is considering the use of MUS. Kiss’s accountsreceivable are recorded at $400,000. Based on the necessary level of risk, Frehley has established a risk of incorrect acceptance of 5 percent. In addition, based on previous audits,Frehley estimates misstatements of $10,000. Finally, based on the overall level of performance materiality, Frehley has established tolerable misstatement at $20,000.Required:a. Determine the necessary sample size for Frehley’s examination of Kiss Company’saccounts receivable.b. Assume that Frehley was interested in trying to reduce the necessary sample size. Whatare some options available in this regard?c. Based on a discussion with the senior manager, Frehley knows that increasing the level ofthe risk of incorrect acceptance will reduce sample size. For the same level of expectedmisstatement, tolerable misstatement, and population size,…arrow_forward
- The 1,000 accounts receivable of Gamco Company have a total book value of $20,000. Wilbur Schneitz, Certified Public Accountant (CPA), has selected and audited a sample of 50 accounts with a total book value of $900. Using nonstatistical variables sampling and the difference estimation technique, Smith has properly estimated a projected misstatement of an overstatement of $3,000 for the entire population. The total audited value of Schneitz’s sample is: 650 1000 750 900arrow_forward15. An account balance is $200,000 and there are 70 items in the account, five of which have balances that equal or exceed $16,000. The auditor plans to use a dollar-unit sampling plan with systematic sample selection. To ensure that all accounts with balances of at least $16,000 are selected, the sampling interval should be (2 Points) 16,000 60,000 15,000 O 40,000 16. The auditor plans to use a dollar-unit sampling plan with systematic sample selection, If the Tolerable misstatement 20,000 and the population is 250,000 and the Confidence factor is 2.77 at 10% ARIA. The sample size is approximately: (2 Points) 35 13 28 8arrow_forwardUpper Limit on Misstatements Calculation: Monetary Unit Sampling. Jordan Thomas is using MUS to examine a client’s accounts receivable balance. Using a sample size of 100 items and a sampling interval of $12,300, Thomas identified the following misstatements: Item Recorded Balance Audited Value 1 $15,000 $12,500 2 10,000 4,000 3 3,000 2,000 Required:a. Calculate the upper limit on misstatements assuming a risk of incorrect acceptance of (1) 5 percent and (2) 10 percent.b. Based on your calculations in part (a), comment on the relationship between the risk of incorrect acceptance and the upper limit on misstatements.arrow_forward
- An auditor is determining the appropriate sample size for testinginventory valuation using MUS. The population has 2,620 inventory items valued at$12,625,000. The tolerable misstatement is $500,000 at a 10% ARIA. No misstatementsare expected in the population. Calculate the preliminary sample sizearrow_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_forwardEvan 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 pleasearrow_forward
- 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?arrow_forwardCarson 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_forwardUpper Limit on Misstatements Calculation: Monetary Unit Sampling. The auditorsmailed positive confirmations on 60 customers’ accounts receivable balances. The company’saccounts receivable balance comprised 2,356 customer accounts with a total recorded balanceof $19,600,000, and the sampling interval was $280,000. The auditors received four positiveconfirmation returns reporting exceptions. Upon follow-up, they found the following:∙ Account 2333. Recorded balance $8,345. The account was overstated by $1,669 becausethe client made an arithmetic mistake recording a credit memo. The company issued only86 credit memos during the year. The auditors examined all of them for the same arithmetic mistake and found no similar misstatements.∙ Account 363. Recorded balance $7,460. The account was overstated by $1,865 because thecompany sold merchandise to a customer with payment due in six months plus 15 percentinterest. The billing clerk made a mistake and recorded the sales price and the…arrow_forward
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