Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 17, Problem 32DQP
(a).
To determine
Determine point estimate, the computed precision interval, the confidence interval and confidence limit for the population.
(b).
To determine
Determine whether Person P should accept book value of population.
(c).
To determine
Determine the available options.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You are evaluating audit results for current assets for your audit client Pepper Ltd.
You take a random sample of inventory items worth $10,000 for price test and detect $1,000 worth of overstatements. The total carrying value of inventory is $100,000 and sampling error is $2,000. What is the total estimated misstatement for inventory account?
Upper 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…
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 size
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
Ch. 17 - Prob. 11RQCh. 17 - Prob. 12RQCh. 17 - Prob. 13RQCh. 17 - Prob. 14RQCh. 17 - Prob. 15RQCh. 17 - Prob. 16RQCh. 17 - Prob. 17RQCh. 17 - Prob. 18RQCh. 17 - Prob. 19RQCh. 17 - Prob. 20RQCh. 17 - Prob. 21.1MCQCh. 17 - Prob. 21.2MCQCh. 17 - Prob. 21.3MCQCh. 17 - Prob. 22.1MCQCh. 17 - Prob. 22.2MCQCh. 17 - Prob. 22.3MCQCh. 17 - Prob. 23.1MCQCh. 17 - Prob. 23.2MCQCh. 17 - Prob. 23.3MCQCh. 17 - Prob. 24.1MCQCh. 17 - Prob. 24.2MCQCh. 17 - Prob. 24.3MCQCh. 17 - Prob. 25DQPCh. 17 - Prob. 26DQPCh. 17 - Prob. 27DQPCh. 17 - Prob. 28DQPCh. 17 - Prob. 29DQPCh. 17 - Prob. 30DQPCh. 17 - Prob. 31DQPCh. 17 - Prob. 32DQPCh. 17 - Prob. 34DQPCh. 17 - Prob. 35DQP
Knowledge Booster
Similar questions
- Evaluating Results: Classical Variables Sampling. Kyle Berry is using mean-per-unit estimation in the audit of Leonard’s inventory balances. Leonard’s inventory is recorded at $240,000 and comprises 1,200 different items. Berry determined a sample size of 120 items and performed the appropriate substantive procedures. Based on this sample, he determined the following: Average audited value (per item) $204 Standard deviation of audited values $ 22 A summary of some additional parameters estimated by Berry follow: Tolerable misstatement $ 17,500 Expected misstatement $ 7,500 Risk of incorrect acceptance 5% Risk of incorrect rejection 10% Required:a. What is Berry’s estimate of the audited value of Leonard’s inventory?b. Calculate the precision and precision interval for Leonard’s inventory. Provide a briefdescription of the meaning of the precision interval.c. What is Berry’s conclusion with respect to Leonard’s inventory balance?d. Using a risk of incorrect…arrow_forwardAn auditor is determining the appropriate sample size for testing inventory valuation using MUS The population has 3,140 inventory items valued at Calculate the preliminary sample size. Select the formula, then enter the amounts and calculate the sample size. (Abbreviation used TM tolerable misstatement Enter amounts in the for (Click the icon to view the table for determining the confidence factor) Confidence Factor 4.33 TM as Percentage of Population Value 39.75 ECCEED Sample Sizearrow_forwardThe 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 $950arrow_forward
- 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.arrow_forwardUsing difference estimation, an auditor has taken a sample of 75 from a population's 25,000 items; that population has a book value of $125,000. She found that in her sample the average audited value was $4.50, while the average book value was $5.20. What is the estimated total audited value of the population? Multiple Choice $125,000. $107,500. $108,173. $112,500.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
- 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_forwardSample Size and Sampling Interval Determination: Monetary Unit Sampling. Reagan Simmons is conducting the audit of Ace Inc., and is using MUS to select a sampleof inventory items for examination. The recorded balance in Ace’s inventory account was$1,200,000. In carrying out the sampling plan, Simmons established a risk of incorrectacceptance of 5 percent, a tolerable misstatement of $100,000, and an expected misstatement of $20,000.Required:a. What parameters would Simmons consider in determining the sample size for Ace’sinventory?b. How would Simmons identify or establish each of these parameters?c. Determine the necessary sample size for the audit of Ace’s inventory.d. Based on the sample size determined in part (c), determine the appropriate samplinginterval.e. Briefly describe how Simmons would select the sample from a computerized inventorylist that Ace maintains.arrow_forwardg on You are working on the testing of internal controls over price changes in the inventory system. You completed the controis testing to determine whether all price changes were approved by the senior accountant, by reference to master file change forms. In order to place reliance on this control, your audit supervisor has decided that the error rate in the population should be less than 1%. When you calculated your sample size, you used a confidence level of 90% and predicted an error rate of less than one percent. Based on these decisions, you examined 150 inventory price master file change forms. In your testing, you uncovered two deviations. Based on these results, you calculate that the actual error rate in the population could be as high as 2.33%. Required: A. What actions are available to you regarding your planned reliance on the master file change controls? B. What are the advantages and disadvantages of each action? C. How would you decide which action to take? To assist in…arrow_forward
- Upper Limit on Misstatements Calculations: Monetary Unit Sampling. Assume that Parker Fran has calculated a sampling interval for Tide Inc.’s inventory of $10,000 and has conducted an examination of a sample of inventory balances. Fran has identified the following three misstatements: Item No. Recorded Balance Audited Value X-21 $ 3,000 $ 1,200 Z-24 550 440 AA-02 6,000 1,500 Required:Calculate the upper limit on misstatements for the following levels of the risk of incorrect acceptance. In general, what relationship do you observe between the risk of incorrectacceptance and the upper limit on misstatements?a. 5 percent.b. 10 percent.arrow_forwardThe 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 $1,400arrow_forwardIndicate whether you agree or disagree with the following statements and explain your reasoning. Joseph Cabana was explaining to Carl Metz how sampling risk works for the audit team: "Non- sampling risk is the risk that as auditors we will arrive at a conclusion that has nothing to do with sampling issues." Kendal Clarke was auditing the miscellaneous expense account. She decided to chose every transaction that had a value of $20,000 or higher. Kendal is performing a statistical sampling technique known as systematic selection. Melissa Wilson had concluded that control risk was low for her audit client. Therefore, she decided that the most appropriate audit strategy was a combined audit strategy.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
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 (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning