Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 17, Problem 34DQP
a.
To determine
Plan the
b.
To determine
Plan the sample size for the test of pricing inventories using MUS.
c.
To determine
To plan the combined sample size both for conformation of accounts receivable and the price test of inventory using MUS.
d.
To determine
To generate a list of random dollars in generation order and in ascending order for sample of accounts receivable determined in part a
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For which of the following audit tests would an auditor most likely use attribute sampling?
Making an independent estimate of the amount of FIFO Inventory.
Examining invoices in support of the valuation of fixed asset additions.
Selecting accounts receivable for confirmation of account balances
Inspecting employee time cards for proper approval by supervisors.
An auditor had decided to use probability-proportional-to-size (PPS) sampling, also called dollar-unit or cumulative monetary unit (CMU) sampling, in the audit of the client’s accounts receivable balance. The auditor discovered 3 misstatements while doing their testing. Complete the spreadsheet below and calculate the total projected misstatement.
Assume that your audit assistants also performed tests of controls on a sample of 200 purchases. During the tests they found that 16 purchases did not comply with the
control procedures as laid down. This gave a sample deviation rate of 8%. After performing the tests, the audit assistant noted the following conclusion: The deviation
rate of 8% is below the quantitative materiality level of 10% as outlined in the accounting standards. Therefore, controls over purchases can be relied on'. Critically
evaluate the appropriateness of the assistant's evaluation of sampling results relating to the tests of controls on purchases.
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
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- 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?arrow_forwardIn order to determine whether accounts payable are understated, auditors wish to obtain a sample of purchase transactions from suppliers and how they were recorded in the accounting books. � , sampling is the best mechanism to obtain this type of samples. a . discovery b . attributes c . random digits d . variablesarrow_forwardThe auditors of Landi Corporation wish to use a structured approach to nonstatistical sampling to evaluate the reasonableness of the accounts receivable. Landi has 15,000 receivable accounts with a total book value of $2,500,000. The auditors have assessed the combined level of inherent and control risk at a moderate level and believe that their other substantive procedures are so limited as to require a “maximum” risk assessment. After considering the overall audit plan, the auditors believe that the test’s tolerable misstatement is $57,500. Use figure below to determine the reliability factor. Please calculate the sample size. Risk That Other Substantive Procedures Will Fail to Detect a Material Misstatement Combined Assessment of Inherent and Control Risk Maximum Moderate Low Maximum 3.0 2.3 1.9 Slightly below Maximum 2.7 2.0 1.6 Moderate 2.3 1.6 1.2 Low 1.9 1.2 1.0arrow_forward
- In an audit sampling application, an auditora. Performs procedures on all items in a balance and makes a conclusion about the entirebalance.b. Performs procedures on less than 100 percent of the items in a balance and formulates aconclusion about the entire balance.c. Performs procedures on less than 100 percent of the items in a class of transactions tobecome familiar with the client’s accounting system.d. Performs analytical procedures on the client’s unaudited financial statements when planning the audit.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_forwardMonetary 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_forward
- General Attributes Sampling. Frazier Holyfield, a new staff accountant, is evaluatingimportant controls over the revenue cycle and, more specifically, assessing the operatingeffectiveness of the control that all shipments made to customers by Top Rank Inc. havebeen properly invoiced.Required:Comment on the following actions that Holyfield performed. You should evaluate eachaction independently of any other actions.a. Holyfield decided to inspect documentary evidence that all shipments made by Top Rankhave been invoiced by matching shipping documents with invoices. Accordingly, shehas identified the population from which she intends to sample as all sales invoices. TopRank has a computerized list of invoiced sales that she can use to select the appropriatesample.b. Because Holyfield plans to place a high degree of reliance on this particular control, sheassesses the risk of overreliance at 5 percent. In previous years, a 10 percent level wasused, but consultation with the engagement…arrow_forwardCarson Allister is performing a PPS application in the audit of Bird Company’s accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a sample size of 75 items and a sampling interval of $25,000. After examining the sample items, the following misstatements were identified: (Use Exhibit F.A.2.) Item Recorded Balance Audited Value 1 $35,000 $28,000 2 10,000 8,000 3 6,000 3,000 Required: Calculate the upper limit on misstatements for Bird Company’s accounts receivable.arrow_forwardAttribute 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?arrow_forward
- As part of your annual audit plan, you will be conducting an audit of the Purchases-Payables cycle. And to effectively plan for the audit, you have to document your understanding of the said process using a flowchart. This is also part of your usual planning procedures which will be expected from you by your Audit Manager. As a result of your interviews, observations, understanding of the process’ policies and procedures; you were able to gather the following data: The requests to purchase materials or the Purchase Requisition (PR) are prepared by the Purchasing department which is confirmed by the inventory controllers. These are approved by authorized personnel based on the company’s Approval Matrix. After confirmation of the PR, Purchasing Department will prepare the Purchase Orders (PO). These POs do not undergo further approval as long as supported by approved by PRs. A copy of the PO is sent to the vendor and another copy of the same PO to the Receiving personnel. Another copy…arrow_forwardComprehensive Attributes Sampling. Audra Dodge, CPA, is performing an attributessampling plan for her audit of Truck Company. In her audit of cash disbursements, she hasidentified preparing a voucher and marking it as “paid” prior to preparing and mailing acheck to the vendor as an important control. Dodge defined any voucher that was not markedas “paid” as being a deviation. In performing her sampling application, she established the following parameters:Risk of overreliance 5%Expected population deviation rate 1.5%Tolerable rate of deviation 4%Required:a. Identify what factors Dodge considered in establishing the risk of overreliance, expectedpopulation deviation rate, and tolerable rate of deviation.b. Assume that Dodge wished to place additional reliance on this control. How would thataffect the three parameters in part (a)?c. Based on the original parameters, use AICPA sample size tables to determine the appropriate sample size.d. If Dodge selected the sample size in part (c) and…arrow_forwardAs part of your annual audit plan, you will be conducting an audit of the Purchases-Payables cycle. And to effectively plan for the audit, you have to document your understanding of the said process using a flowchart. This is also part of your usual planning procedures which will be expected from you by your Audit Manager. As a result of your interviews, observations, understanding of the process’ policies and procedures; you were able to gather the following data: The requests to purchase materials or the Purchase Requisition (PR) are prepared by the Purchasing department which is confirmed by the inventory controllers. These are approved by authorized personnel based on the company’s Approval Matrix. After confirmation of the PR, Purchasing Department will prepare the Purchase Orders (PO). These POs do not undergo further approval as long as supported by approved by PRs. A copy of the PO is sent to the vendor and another copy of the same PO to the Receiving personnel. Another copy…arrow_forward
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