You have been asked to test the effectiveness of Ingo Corporation's control of manually approving all purchases over$25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. JianZhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 6 percent (although she expects the rate to beonly approximately 0.75 percent) and a 5 percent risk of assessing control risk too low. Use the following to determine theplanned assessed level of control risk and the assessed level of control risk.(Planned) Assessed Level of Control Risk Tolerable Deviation RateLow2-7%Moderate6-12%Slightly below the maximum11-20%MaximumOver 20%a. What is the planned assessed level of control risk?multiple choiceLowModerateSlightly below the maximumMaximumb. Determine the appropriate sample size and allowable number of deviations using Figure 9.4.Sample size?Allowable Number of Deviations-c. Use Figure 9.5 to determine the achieved upper deviation rate and the above table to determine the assessed level ofcontrol risk under the following circumstances. Assume that the sample size was 100 items. (Round your answers to 1decimal place.)

Testing Ingo Corporation's Purchase Approval ControlScenario:Ingo Corporation has implemented a…

Answered: You have been asked to test the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The 4,000 accounts receivable of GHI Company have a total book value of $60,000. Bob Smith, Certified Public Accountant (CPA), has selected and audited a sample of 100 accounts with a total book value of $1,600. Using the mean-per-unit estimation technique, Smith has properly estimated a projected misstatement of a $8,000 overstatement for the entire population. The audited value of Smith's sample is: Multiple Choice $1,600 $1,800 $1,300 $1,400
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 22 percent of the sales invoices lacked approval. A sample of 200 Invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the: Multiple Choice O expected population deviation rate (7 percent) was more than the percentage of errors in the sample (3½ percent). expected population deviation rate (2½ percent) was less than the tolerable deviation rate (7 percent). tolerable deviation rate (7 percent) was less than the computed upper…
You are auditing the accounts receivable for Conor Company as of December 31, 2022 One of your procedures was to send positive confirmations to a sample of 50 accounts. Of those 50 confirmations, 40 have been positively confirmed without comments, 7 had minor differences that have been cleared satisfactorily. The remaining 3 had the following comments: “We received $6,000 of goods on consignment on November 20, 2022. We have not sold them yet.” “We received these goods on January 5, 2023 and mailed a check on January 7, 2023.” “The balance of $2,000 was paid on December 10, 2022.” For each of these comments, identify the steps that you would take to clear (resolve) them.
The 1,500 accounts receivable of DEF Company have a total book value of $30,000. Bob Smith, Certified Public Accountant (CPA), has selected and audited a sample of 50 accounts with a total book value of $1,050. Using 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 Smith's sample is: Multiple Choice $900 $1,150 $850 $950
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 750 900
An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past five years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue?a. The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management.b. The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.c. The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales.d. The auditor should review period-end compensation to determine whether bonuses were paid to meet earnings goals.
James Duffney, CPA, has randomly selected and audited a sample of 100 of Will-Mart’s accounts receivable. Will-Mart has 6,140 accounts receivable accounts with a total book value of $6,000,000. Duffney has determined that the account’s tolerable misstatement is $500,000. His sample results are as follows: Average audited value $962 Average book value 970 Required: Calculate the accounts receivable estimated audited value and projected misstatement using the: a. Mean-per-unit method. b. Ratio method. c. Difference method.
You are auditing the financial statements of Blue Pty Ltd, a whitegoods wholesaler. You ask the audit junior to assist you to test whether or not purchases of equipment are fairly stated. You tell him that you will use dollar unit sampling. Your assistant provides you with the information in the table below. Number of purchases 6,000 Amount of purchases $6,000,000 Sample size 60 Dollar value of sample $600,000 Materiality allocated $60,000 Error found in the sample $600 REQUIRED: Draw a conclusion, on the basis of the information provided, as towhether or not purchases are fairly stated. Explain your answer and show all calculations.
A scrap metal dealer claims that tye mean of its cash sales in no more than $80, although an Internal revenue service agent believes that the dealer is being dishonest. Observing a sample of 20 cash customers the agent finds the mean cash sales to be $91 with a standard deviation of $21. Assuming the popUlation is distributed Approximately normally, and using the 0.05 level of significance , will the agents suspicion be confirmed?
You are the audit manager for Ken-Ron Enterprises. Your firm has been the entity’s auditor for 15 years. Your firm normally uses a range of 3% to 5% of income before taxes to calculate overall materiality and 50-75% of overall materiality to calculate tolerable misstatement. Ken-Ron has reported the following financial statement data (in millions) for the last four years: (Data shown in image) Required:a. If you planned on using income before taxes as the benchmark to compute overall materiality and tolerable misstatement, how would you compute those amounts for 2018? Prepare and justify your calculations.b. Determine overall materiality and tolerable misstatement using either total assets or total revenues as the benchmark. Make the calculations by utilizing both .25% and 2%, the endpoints of the range that your firm’s guidance provides.c. Assume that during the course of the 2018 audit you discovered misstatements totaling $50 million (approximately 50% of the 2018 income before…
An 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).
The 10,000 accounts receivable of DEF Company have a total book value of $120,000. A CPA has selected and audited a sample of 100 accounts with a total book value of $1,000 and an audited value of $1,200. Using the ratio estimation technique, the estimated total audited value of the population is: 140,000 100,000 144,000 120,000

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