AUDITING RMU
11th Edition
ISBN: 9781260934830
Author: MESSIER
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 9.25P
a
To determine
Introduction:
Non-statistical sampling test of control: The difference between non-statistical and statistical sampling is mainly in the selection of
Under the non-statistical method, the sample size is determined based on personal experience and knowledge of the auditor and guidance in audit firm policy. All the major available sample selection methods and other selection methods can be used for selection of sample.
The preliminary sample size, under given conditions.
b
To determine
Introduction:
Non-statistical sampling test of control: The difference between non-statistical and statistical sampling mainly in the selection of sample size and calculating the computed upper deviation rate.
Under this method, the sample size is determined based on personal experience and knowledge of the auditor and guidance in audit firm policy. All the major available sample selection methods and other selection methods can be used for selection of sample.
The sample results and indicate the conclusion.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Bank Oman is a publicly traded company. You were part of the team that was hired to conduct an audit of the financial statements of the company for the previous year. After detailed examination of controls and transactions, you discovered a few immaterial misstatements in their accounting practices which were immediately corrected by management. These misstatements include errors in the computation of depreciation and valuation of the inventory. In this situation, what type of audit report could your team possibly give to Bank Oman?
a.
Qualified opinion
b.
Adverse opinion
c.
Disclaimer of opinion
d.
Unqualified opinion
You are an auditor working with JUMAN audit firm. JUMAN audit firm accepted two engagements to audit the financial statements of MUNER company and MUHEET company. Explain how risk of material misstatement should he assessed and what effect that assessment will have on detection risk for the following two audit clients:
MUNER firm, is a fast-growing trucking company operating in the southeastern part of the West Bank. The company is publicly held, but Hafeth Khalil and his sons control 58 percent of the stock. Hafeth Khalil is chairman of the board and CEO. He personally makes all major decisions with little consultation with the board of directors. Most of the directors, however, are either members of the Khalil family or long-standing friends. The board basically rubber-stamps Hafeth Khalil's decisions.
As the auditor for Company A, you discover that a material sale ($500,000 sale; cost of goods of $300,000) was made to a customer this year. Because of poor internal accounting controls, the sale was never recorded. Your client makes a management decision not to bill the customer because such a long time has passed since the shipment was made. You determine, to the best of your ability, that the sale was not fraudulent. Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction.
Instructions:
Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction. Please make sure to use at least 100 words in your response. Once you give your response, please respond to at least two of your peers using at least 50 words in your responses. Remember to follow the netiquette guidelines found in the course…
Chapter 9 Solutions
AUDITING RMU
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
Knowledge Booster
Similar questions
- Mike Crane is an audit senior of a large public accounting firm who has just been assigned to the Frost Corporation's annual audit engagement. Frost has been a client of Crane's firm for many years. Frost is a fast-growing business in the commercial construction industry. In reviewing the fixed asset ledger, Crane discovered a series of unusual accounting changes, in which the useful lives of assets, depreciated using the straight-line method, were substantially lowered near the midpoint of the original estimate. For example, the useful life of one dump truck was changed from 10 to 6 years during its fifth year of service. Upon further investigation, Mike was told by Kevin James, Frost's accounting manager, “I don't really see your problem. After all, it's perfectly legal to change an accounting estimate. Besides, our CEO likes to see big earnings!” Instructions Answer the following questions. a. What are the ethical issues concerning Frost's practice of changing the useful lives of…arrow_forwardListed below are various risks identified during audit planning that you have been asked to evaluate to assess whether they are significant risks. Fernandez Wholesalers sells energy drinks to various distributors. As they have expanded sales to additional customers, there has been some increase in the age of accounts receivable, which could require an increase in the allowance for doubtful accounts. Sansone Construction builds light commercial real estate properties. This year they started a new project that is three times larger than previous projects completed by the company, and is the first one that will take more than one year to complete. The company has limited experience with percentage of completion contract accounting, and the project is running significantly behind schedule. Horton Sports produces high-end sporting gear. Sales and receivables have increased significantly in the fourth quarter over the previous year, and the company has pressured customers in the past…arrow_forwardAn audit firm is conducting the audit of Diaz Construction Company for the fiscal year ended October 31. Rebecca Smith, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Diaz’s inventory account. The balance in the inventory at October 31 was $4,250,000. Rebecca has established the following: risk of incorrect acceptance = 5% (i.e., the desired confidence level of 95%), tolerable misstatement = $212,500, and expected misstatement = $63,750. Calculate the sample size and sampling interval using Table 8-5 in the textbook (round your interval answer to the nearest whole number).arrow_forward
- 18.During an audit of a retail company, Lily, newly hired internal auditor, found a scheme in which the warehouse manager and a purchasing staff diverted approximately Php2 million worth of goods to an outside warehouse, the sold the goods to third parties. The fraud was not found earlier by the internal audit team since the warehouse manager updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures did Lily perform which would have most likely led to the discovery of the missing materials and the fraud? Group of answer choices Random sampling of receiving reports and tracing to the recording in the perpetual inventory records. Selecting a random sample of purchase orders and trace to receiving reports and to the records in the accounts payable department. Performance of physical inventory count, then reconciliation of the amounts with the perpetual inventory records. Random…arrow_forwardDavid H. Brooks, a university graduate with an accounting degree and the former CEO of DHBIndustries, Inc., was charged in October 2007 with accounting and securities fraud for failing toreport the company’s inventory at the lower of cost or market. From 2001 to 2005, DHB purchasedlarge quantities of a material called Zylon and used it in making bulletproof vests that were sold tothe U.S. military and local law enforcement agencies. During this same period, DHB learned thatZylon deteriorated rapidly when exposed to light, heat, and body perspiration. DHB knew that oneof its competitors, Second Chance Body Armor, had stopped using Zylon in its vests and, eventually, discontinued its business because customer demand for its Zylon-based vests had evaporated.DHB did not write down its own inventory of Zylon and Zylon-based vests because it had a largecontract to supply the U.S. military with bulletproof vests. In its financial statements for the yearended December 31, 2004, DHB reported…arrow_forwardHenry Nowakowski, the auditor-in-charge of Vinacomin, a Vietnamese mining company, was reviewing the expert's report on the valuation of reserves for the world's largest bauxite deposits. The mining plans of Vinacomin have met with strong criticism from scientists, environmentalists, and the Vietnamese population. The bauxite operations had required the use of local auditors of another international public accounting firm. The group engagement partner, Judith Wooden, met with Henry to discuss the reliance their firm would be placing on the component auditors. She was concerned that the component auditors' conclusions were not based on adequate evidence. The financial statements being audited by the component auditors are a material part of the consolidated statements of Vinacomin. Required: a) What does Henry need to consider when assessing the expert's report on the bauxite deposits? b) Before the decision was made to use the work of another auditor, what should Henry and the firm…arrow_forward
- During the course of the audit, the following additional information was obtained: a. The trading securities were acquired on December 31, 2011. The securities have a fair value of P67,000 at December 31, 2012. b. In discussion with the company officials, it was determined that the doubtful accounts expense rate based on net sales should be reduced to 2% from 3%, effective January 1, 2012. c. As a result of errors in the physical count, inventories were overstated by P12,000 at December 31, 2011 and by P17,500 at December 31, 2012. d. On January 1, 2011, the cost of equipment purchased for P30,000 was debited to repairs and maintenance. PRTC depreciates equipment of this type by the straight-line method over a five-year life with no residual value. e. On July 1, 2012, fully depreciated equipment purchased for P21,000, was sold as scrap for P2,500. The only entry PRTC made was to debit cash and credit property and equipment for the scrap proceeds. The property and equipment (net) had a…arrow_forwardIndicate whether you agree or disagree with the following statements and explain your reasoning. Teresa Dziuba was assigned to the Heathcliff Energy audit. She was ensuring that when recognizing revenues, all transactions and events that should have been recorded have been recorded. She was testing the existence assertion. Assume materiality for the financial statements as a whole is $200,000 and performance materiality for accounts receivable is set at $80,000. If the auditor finds one receivable that is overstated by $110,000, the auditor can ignore the error as it is less than $200,000 (overall materiality). Steve Slopak, the group partner was reviewing the work of Manny Fernandez on the Lake Shore Gold account. Manny asked Steve for an explanation on how audit risk_ould affect his work. Steve answered: “Audit risk affects the quantity and quality of evidence gathering."arrow_forwardAn auditor discovered the following matters while performing tests of controls 1.An invoice for goods received from Company for P10,000 was paid, but the client never ordered the goods. Required: a.What control would have prevented or detected each of the above misstatements? b.What test should the auditor perform to test the control? c.To which financial statement assertion does the misstatement relate?arrow_forward
- The owner of a trading company engaged your services as auditor. There is a discrepancy between the companys income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigation revealed the following: 1. Physical inventory, taken December 31, 2019 under your observation, showed that cost was P26,500 and market value, P25,000. The inventory of January 1, 2019 showed cost of P39,000 and market value of P37,500. It is the firms practice to value inventory at lower of cost or market. Any loss between cost and market value is included in Other Expenses. 2. The average gross profit rate was 40% of net sales. 3. The Accounts Receivable as of January 1, 2019 were P13,500. During 2019, Accounts Receivable written off during the year amounted to P1,000. Accounts Receivable as of December 31, 2019 were P37,500. 4. Outstanding purchase invoices amounted to P50,000 at the end of 2019. At the beginning of 2019 they…arrow_forwardAlexander Robinson, a junior auditor working for Big One Accounting Firm. He is included in the audit team engaging in the audit the Financial Reports of Complicated Ltd., a listed company on AST. When evaluating audit results for assets in the audit, Alexander has set the preliminary judgment about materiality to be $67,000. He then allocated the materiality to all the asset accounts. The account balances, performance materiality and estimated overstatements in the accounts are shown below: Account Account balance Performance materiality Estimate of total overstatements Cash 60,000 6,000 5,500 Account receivable 1,300,000 20,000 500,000? Inventory 2,100,000 60,000 45,000 Other assets 360,000 24,000 23,000 Total 4,090,000 110,000 Alexander has chosen a sample of $500,000 in Accounts Receivable. He tested it and uncovered $6000 in overstatement. He then checked on the individual accounts and all accounts in the total assets against the allocated performance…arrow_forwardYou were assigned to audit the bond investments of JIHUZ company. The company maintains the records and custody of its certificates, thus you have decided to conduct a count of securities to test the existence assertion. You have asked that a person from JIHUZ company should accompany you during the count. Why is this important? To detect fraudulent securities So that the company representative may assist you during the count To acknowledge any variances during the inspection. -ry So that the inspection of securities will be conducted in an efficient mannerarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning