Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 49P
a.
To determine
Explain the conclusion that the auditor may draw from using the non-statistical sampling.
b.
To determine
Explain the conclusion that the auditor may draw from using the difference estimation.
c.
To determine
Explain the conclusion that the auditor may draw from using attributes sampling plan.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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…
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.
The auditor conducted test of details of transaction and audit client's revenue using sampling. There are 100 sales transactions made by the company. Overall of the 100 transactions, according to auditor’s professional judgment, materiality is set at 5% or 5 transactions. The auditor took a sample of 20 transactions, and it turns out that of the 20 transactions examined, there were 2 misstatement found. Based on the results of the sampling inspection, the auditor concluded that there was 2 out of 20 means 10%, and judge this finding as material misstatement. When in fact, overall of the 100 transactions there were only that 2 transactions occurred irregularities or errors that accidentally that two were chosen on 20 random sampling. What we called the risk involved in this case example? Explain your answer specifically!
Chapter 9 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 9 - Prob. 1RQCh. 9 - Prob. 2RQCh. 9 - Prob. 3RQCh. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 8RQCh. 9 - Prob. 9RQCh. 9 - Prob. 10RQ
Ch. 9 - Prob. 11RQCh. 9 - Prob. 12RQCh. 9 - What is a dual-purpose test?Ch. 9 - Prob. 14RQCh. 9 - Prob. 15RQCh. 9 - Prob. 16RQCh. 9 - What would be the difference between an attributes...Ch. 9 - Prob. 18RQCh. 9 - Prob. 19RQCh. 9 - Prob. 20RQCh. 9 - Prob. 21RQCh. 9 - Prob. 22RQCh. 9 - Prob. 23RQCh. 9 - Prob. 24RQCh. 9 - Prob. 25RQCh. 9 - Prob. 26RQCh. 9 - Prob. 27RQCh. 9 - Prob. 28RQCh. 9 - Prob. 29QRACh. 9 - Prob. 30QRACh. 9 - Prob. 31QRACh. 9 - Prob. 32QRACh. 9 - Prob. 33QRACh. 9 - Prob. 34QRACh. 9 - Prob. 35QRACh. 9 - Prob. 36QRACh. 9 - Prob. 37AOQCh. 9 - Prob. 37BOQCh. 9 - Prob. 37COQCh. 9 - Prob. 37DOQCh. 9 - Prob. 37EOQCh. 9 - Prob. 37FOQCh. 9 - Prob. 37GOQCh. 9 - Prob. 37HOQCh. 9 - Prob. 37IOQCh. 9 - Prob. 37JOQCh. 9 - Prob. 37KOQCh. 9 - Prob. 37LOQCh. 9 - Prob. 38OQCh. 9 - Prob. 39OQCh. 9 - For each term in the first column below, identify...Ch. 9 - Prob. 41OQCh. 9 - Smith, Inc. Rachel Robertson wishes to use...Ch. 9 - Prob. 43OQCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Prob. 46PCh. 9 - Prob. 47PCh. 9 - In the audit of Potomac Mills, the auditors wish...Ch. 9 - Prob. 49PCh. 9 - Prob. 50PCh. 9 - Prob. 51PCh. 9 - Prob. 52ITC
Knowledge Booster
Similar questions
- During the audit of MJ Precious Metals Inc, the auditor observes the physical count at year-end and recalculates the mathematical accuracy of a sample of inventory on hand. Which of the two test of details results in existence assertion? Both test of details results in existence assertion.Recalculating the mathematical accuracy of a sample of inventory on hand.No test shows the detail results in existence assertion.Observing the physical count at year-end.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_forwardIn the audit of Checkers, Inc., a nonissuer, the auditor was assigned to a test of cash disbursements. The auditor randomly selected a sample of 75 items out of the 1,500 disbursements made. After completing the test procedures, the auditor determined that the sample contained several misstatements totaling $4,500. All of these were overstatements. The auditor then computed a projected misstatement of $90,000 $24,500 $337,500 $112,500 0000arrow_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_forwardDetection of Errors and Fraud. For each of the following independent events, indicate the (1) effect of the error or fraud on the financial statements and (2) what auditing procedures could have detected the misstatement resulting from error or fraud.a. The physical inventory count of J. Payne Enterprises, which has a December 31 year-end, was conducted on August 31 without incident. In September, the perpetual inventory was not reduced for the cost of sales.b. Holmes Drug Stores counted its inventory on December 31, which is its fiscal year-end. The auditors observed the count at 20 of Holmes’s 86 locations. The company falsified the inventory at 20 of the locations not visited by the auditors by including fictitious goods in the counts.c. Pope Automotive inadvertently included in its inventory automobiles that it was holding on consignment for other dealers.d. Peffer Electronics Inc. overstated its inventory by pricing wiring at $200 per hundred feet instead of $200 per thousand…arrow_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
- The following two tests were carried out on the accounts payable at Gardens Nursing Home: 1: A number of suppliers were selected from the list of trade creditors at year-end and balances traced to supplier invoices and goods received notes to ensure goods were received prior to the year-end. For two creditors out of 15 tested the balance was only marginally overstated. Audit conclusion: Accepted as no material errors located. 2: Selected a number of suppliers’ invoices and checked that the pricing and discount terms have been reviewed and authorized by the purchase manager. Three out of 20 invoices tested had not been authorized and incorrect discounts were recorded for these invoices. A follow-up of the three samples with deviations did not highlight a pattern or specific reason for the errors. Audit conclusion: Accepted as the errors in discounts claimed were immaterial. Required: For each of the test results for Gardens Nursing Home: (a) Identify whether this is a test…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_forwardFor the audit of Carbald Supply Company, CaroleWever, CPA, is conducting a test of sales for 9 months of the year ended December 31,2013. Included among her audit procedures are the following:1. Foot and cross-foot the sales journal and trace the balance to the general ledger.2. Review all sales transactions for reasonableness.3. Select a sample of recorded sales from the sales journal and trace the customername and amounts to duplicate sales invoices and the related shipping document.4. Select a sample of shipping document numbers and perform the following tests:a. Trace the shipping document to the related duplicate sales invoice.b. Examine the duplicate sales invoice to determine whether copies of the shippingdocument, shipping order, and customer order are attached.c. Examine the shipping order for an authorized credit approval.d. Examine the duplicate sales invoice for an indication of internal verificationof quantity, price, extensions, footings, and trace the balance to the…arrow_forward
- Consider the following audit work performed by two auditors, Suzy and Gary:(a) Suzy attended the client’s year-end stocktake and observed that the client followed the stocktake instructions. She selected numerous items for test counting from the client’s inventory sheets and all were found to be correct. Cut-off details were noted and subsequently checked and found to be correctly treated. Suzy concluded that inventory was fairly stated.(b) Maintenance expenses were material, although it was only 50% of last year’s balance. Gary selected a large sample of entries and agreed them to supporting documents. No errors were found. Gary concluded that maintenance expenses were reasonable. Required:Indicate whether sufficient appropriate audit evidence has been obtained to support the conclusions for the inventory and maintenance expenses accounts.Explain your answers.arrow_forwardYou 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_forwardCommon Law Responsibility for Errors and Fraud. Huffman & Whitman (H&W), alarge regional accounting firm, was engaged by Ritter Tire Wholesale Company to auditits financial statements for the year ended January 31. H&W had a busy audit engagement schedule from December 31 through April 1 and decided to audit Ritter’s purchasevouchers and related cash disbursements on a sample basis. The firm instructed staffmembers to select a random sample of 130 purchase transactions and gave directionsabout important deviations, including missing receiving reports. Boyd, the assistant incharge, completed the audit documentation, properly documenting the fact that 13 ofthe purchases in the sample had been recorded and paid without including the receivingreport (required by stated internal control procedures) in the file of supporting documents. Whitman, the partner in direct charge of the audit, showed the findings to Lock,Ritter’s chief accountant. Lock appeared surprised but promised…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 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...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: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