Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 17, Problem 18RQ
To determine
Identification of mistakes done by the auditor while using difference estimation in the given case.
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Which of the following statements is false?
A) Top-stratum items are population items whose book value likely exceed the Sampling Interval and would be all selected for examination and evaluation during the audit.
B) Because the auditor knows the full amount of errors in the top stratum (since all items are evaluated), no estimate of errors or projection to the population for the errors in the top stratum is required.
C) The auditor's evaluation of the most likely misstatements in the sample reflects the sum of the misstatements from the top-stratum and the projected misstatement derived from the each lower-stratum items
D) None of the above
Which one of the sentences below is FALSE?
A.
The risk of incorrect acceptance called beta risk has the consequence that the auditor may assume that the population is free of material misstatement.
B.
The risk of incorrect rejection is called alpha risk and has the consequence that the auditor may assume on the basis of sample results that a population is materially misstated when, in fact, it is not .
C.
The risk of incorrect acceptance is called beta risk.
D.
The risk of incorrect rejection very common in audit sampling is called beta risk.
In 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.
Chapter 17 Solutions
Auditing And Assurance Services
Ch. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - Prob. 10RQ
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- If the UML or Projected Misstatement in a sampling is $8,000, while the tolerable misstatement is $9,000, what would an auditor likely conclude? A) Since the UML or Projected Misstatement is less than the tolerable misstatement, the account is not materially misstated. B) Since the UML or Projected Misstatement is less than the tolerable misstatement, the account is misstated. C) The analysis has been improperly performed since the UML or Projected Misstatement is unequal to the tolerable misstatementarrow_forwardWhich of the following statements is not true with respect to the calculation of the upperlimit on misstatements?a. The tainting percentage is determined based on the difference between the recorded balance and the audited value.b. A separate incremental allowance for sampling risk is calculated for each misstatementdiscovered by the auditor.c. If no misstatements are detected, the basic allowance for sampling risk equals zero.d. The projected misstatement is determined by multiplying the sampling interval by thetainting percentage.arrow_forward(Appendix G.B) To determine the sample size for a classical variables sampling application,an audit team should consider the tolerable misstatement, risk of incorrect acceptance, riskof incorrect rejection, population size, population variability, anda. Expected misstatement in the account.b. Overall materiality for the financial statements taken as a whole.c. Risk of assessing control risk too low.d. Risk of assessing control risk too higharrow_forward
- Non-statistical sampling is commonly used in audit practice. Describe each of the four items required in a non-statistical audit test. Discuss the reasons why you would use, or not use, this type of testing for account transactions whose values range from very material to immaterial amounts. Describe why you believe non-statistical sampling is best for material vs immaterial amount testing, or vice versa.arrow_forwardSTATEMENT 1: The choice between a statistical and a nonstatistical sampling plan is based primarily on the auditor's assessment of the relative costs and benefits. STATEMENT 2: The choice between a statistical and a nonstatistical sampling plan is made independent of the selection of audit procedures. A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correctarrow_forwardAuditors project the misstatements found in the sample tothe population when using statistical sampling, but not when usingnonstatistical sampling. TRUE OR FALSE? WHY?arrow_forward
- In evaluating the results of audit sampling in test of details which sentence below is FALSE? A. When the projected misstatement plus anomalous misstatement exceeds tolerable misstatement, the sample does not provide a reasonable basis for conclusions about the population that has been tested. B. he auditor's best estimate of the misstatement of the population is the projected misstatement minus anomalous misstatement. C. The closer the projected misstatement plus anomalous misstatement is to tolerable misstatement, the more likely that actual misstatement in the population may exceed tolerable misstatement. D. The auditor's best estimate of the misstatement of the population is the projected misstatement plus anomalous misstatement.arrow_forwardIt is important to recognize that audit sampling may be constructed on a nonstatistical basis.If the auditor uses statistical sampling, probability theory will be used to determine sample sizeand random selection methods to ensure each item or GHc1 in value of the population has thesame chance of selection. Non-statistical sampling is more subjective than statistical sampling,typically using haphazard selection methods and placing no reliance on probability theory.However, in certain circumstances statistical sampling techniques may be difficult to use. Theauditor will review the circumstances of each audit before deciding whether to use statisticalor non-statistical sampling a. Describe to what extent statistical sampling enhances the quality of the audit evidence.b. Explain how judgement is used in statistical and non-statistical sampling c. Explain what you understand by the following terms:(i) Random sampling(ii) Monetary unit sampling.arrow_forwardTRUE OR FALSE When evaluating the results of specific items selected for testing, its effects must be projected to the whole population. Audit sampling refers to the application of audit procedures to less than 100% of the items in account balance or class of transactions for the purpose of evaluating some of its characteristics. In performing external confirmations, the management prepares the requests and receives and replies for communication to the auditor. One of the ways to gain knowledge of any lirigations and claims is through an examination of professional or legal expenses and related source documents. Related parties generally unreliable in nature which leads to the auditor performing procedures to examine transactions with them.arrow_forward
- When making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of incorrect acceptance to be more serious than the risk of incorrect rejection becausea. The incorrect rejection decision impairs the efficiency of the audit.b. The audit team will do additional work and discover the misstatement of the incorrect decision.c. The incorrect acceptance decision impairs the effectiveness of the audit.d. Sufficient appropriate audit evidence will not have been obtained.arrow_forwardRisk of incorrect rejection is defined as _______. the risk that the auditor concludes that a material misstatement does not exist when it does exist the risk that the auditor concludes that a material misstatement exists when it does not exist the risk that an auditor incorrectly rejects a client the risk that management may reject the audit opinion issued by the auditor An advantage of statistical sampling _______. is that it allows an auditor to measure control risk is that it allows an auditor to measure sampling risk is that it allows an auditor to measure inherent risk is that it is cheaper to perform, resulting in lower audit fees for the clientarrow_forwardOn Andit sampling involves applying an audit procedure to less than 100 percent of the population for the purpose of evaluating some characteristic of the population. When an auditor uses sampling. an element of uncertainty enters into the auditor's conclusions. Required: a. Explain the auditor's justification for accepting the uncertainties that are inherent in the sampling process. b. Discuss the uncertainties that collectively embody the concept of audit risk. c. Discuss the nature of sampling risk and nonsampling risk. Include the effect of sampling risk on tests of controls in terms of Type I and Type II errors. Accessibility: Investigate Stylesarrow_forward
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