Loose-leaf For Auditing & Assurance Services: A Systematic Approach
11th Edition
ISBN: 9781260687637
Author: William F Messier Jr, Steven M Glover Associate Professor, Douglas F Prawitt Associate Professor
Publisher: McGraw-Hill Education
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Question
Chapter 9, Problem 9.17MCQ
To determine
Introduction:
Substantive Procedures are designed and performed to detect material misstatement by ensuring the completeness, accuracy and validity of the data produced by the client’s system.
It is of two types:
- Test of Details
- Analytical Procedures
To describe: Sampling methods.
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The unique feature of monetary unit sampling is thata. Sampling units are not chosen at random.b. A dollar unit selected in a sample is not replaced before the sample selection is completed.c. Auditors need not worry about the risk of incorrect acceptance decision.d. The population is defined as the number of monetary units in an account balance or class of transactions.
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?
Monetary Unit and Classical Variables Sampling. Indicate whether each of the following characteristics applies to monetary unit sampling (MUS), classical variables sampling (CVS),both MUS and CVS (both), or neither MUS nor CVS (neither).a. May be used in conjunction with substantive procedures.b. Tends to select higher dollar items for examination.c. Is more effective in identifying overstatements.d. Incorporates assessments of tolerable misstatement in determining sample size.e. Incorporates assessments of the population variability in determining sample size.f. Controls the audit team’s exposure to the risk of incorrect rejection and the risk of incorrect acceptance.g. Requires the audit team to project discovered misstatements to the population.h. Can expose the audit team to nonsampling risk.i. May be used in conjunction with the study and evaluation of internal control.j. Is more appropriate for use when a higher number of misstatements is anticipated.
Chapter 9 Solutions
Loose-leaf For Auditing & Assurance Services: A Systematic Approach
Ch. 9 - Prob. 9.1RQCh. 9 - Prob. 9.2RQCh. 9 - Prob. 9.3RQCh. 9 - Prob. 9.4RQCh. 9 - Prob. 9.5RQCh. 9 - Prob. 9.6RQCh. 9 - Prob. 9.7RQCh. 9 - Prob. 9.8RQCh. 9 - Prob. 9.9RQCh. 9 - Prob. 9.10RQ
Ch. 9 - Prob. 9.11MCQCh. 9 - Prob. 9.12MCQCh. 9 - Prob. 9.13MCQCh. 9 - Prob. 9.14MCQCh. 9 - Prob. 9.15MCQCh. 9 - Prob. 9.16MCQCh. 9 - Prob. 9.17MCQCh. 9 - Prob. 9.18MCQCh. 9 - Prob. 9.19MCQCh. 9 - Prob. 9.20MCQCh. 9 - Prob. 9.21PCh. 9 - Prob. 9.22PCh. 9 - Prob. 9.23PCh. 9 - Prob. 9.24PCh. 9 - Prob. 9.25PCh. 9 - Prob. 9.26P
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- An advantage of statistical sampling over nonstatistical sampling methods is that statistical methodsa. Afford more assurance than a nonstatistical sample of equal size.b. Provide an objective basis for quantitatively evaluating sampling risk.c. Can more easily convert the sample into a dual-purpose test useful for substantive procedures.d. Eliminate the need to use judgment in determining appropriate sample sizesarrow_forwardWhich of the following statements about attribute sampling is correct? A. Larger transactions have a higher chance of being selected into the sample than smaller transactions. B. The risk of over-reliance does not affect the sample size. C. Attribute sampling is often used in the test of controls. D. The haphazard selection method is often used for attribute sampling. E. If the estimated population deviation rate is higher than the tolerable deviation rate, auditors conclude the internal control is effective.arrow_forwardWhich of the following is an advantage of nonstatistical sampling?a. It measures the audit team’s exposure to sampling risk.b. It is required by generally accepted auditing standards.c. It ensures that samples are randomly selected.d. It is typically less complex than statistical samplingarrow_forward
- Subject: Auditing & Assurance Principles Differentiate the following: a) Statistical vs Non-statistical sampling b) Attribute vs Variables samplingarrow_forwardIn using audit sampling for exception rates: the auditor wants to know the most the exception rate is likely to be. sampling error is the likelihood that the auditor will miss a monetary misstatement. the upper limit of the interval estimate is known as the sampling risk. CUER cannot be considered in the context of specific audit objectives.arrow_forwardExplain the following audit sample selection 1. Random selection 2. Systematic selection 3. Monetary unit sampling 4. Haphazard selection 5. Block selection 6. Attribute samplingarrow_forward
- S1: Mean per unit estimation is a classical variable sampling technique that projects the sample average to the total population by multiplying the sample average by the number of items in the population. S2: The more the auditor is relying on other substantive procedures to reduce to an acceptable level the detection risk regarding a particular population, the less assurance the auditor will require from sampling, and the smaller the sample size can be. a. BOTH STATEMENTS ARE TRUE b. BOTH STATEMENTS ARE FALSE c. ONLY S1 IS TRUE d. ONLY S2 IS TRUEarrow_forwardIn audit sampling applications, sampling risk isa. A characteristic of statistical sampling applications but not of nonstatistical applications.b. The probability that the audit team will fail to recognize erroneous accounting in the client’sdocumentation.c. The probability that accounting misstatements will arise in transactions and enter theaccounting system.d. The probability that an audit team’s conclusion based on a sample might be differentfrom the conclusion based on an audit of the entire population.arrow_forward. STATEMENT 1: All auditing procedures involves audit sampling. STATEMENT 2: Sufficiency or adequacy of sample size is more "scientifically" measured with the use of statistical sampling approach. A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correctarrow_forward
- 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. 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_forwardIn 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.arrow_forwardUpper Limit on Misstatements Calculations: Monetary Unit Sampling. Clyde Billy isconducting the audit of Hoops Inc. and is examining Hoops’s inventory balances. Billy plansto select a sample of inventory items for examination and will verify quantities and performprice tests to ascertain that the items are properly recorded according to generally acceptedaccounting principles.Billy determined a sampling interval of $100,000 and, using systematic random selectiontechniques, has identified the following misstatements: Item No. Recorded Balance Audited Value 10-865 $ 12,600 $ 8,400 20-954 110,000 95,000 30-781 55,000 44,000 40-269 80,000 60,000 Required:a. Using a 5 percent risk of incorrect acceptance, calculate the upper limit on misstatements.b. Provide a brief description of the meaning of the upper limit on misstatements using theinformation calculated in part (a).c. Reperform part (a) using a risk of incorrect acceptance of 10 percent.d. What relationship do you…arrow_forward
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