Chapter 9 Homework Questions
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Name: Karolina Rzepka CHAPTER 9 HOMEWORK QUESTIONS
9-12
A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?
a.
Greater reliance on internal controls
b.
Greater reliance on analytical procedures.
c.
Smaller expected frequency of misstatements.
d.
Smaller amount of tolerable misstatement.
9-14
The risk of incorrect acceptance relates to the a. Effectiveness of the audit.
b. Efficiency of the audit.
c. Planning materiality.
d. Allowable risk of tolerable misstatement.
9-16
How would increases in tolerable misstatement and assessed level of control risk affect the sample size
in a substantive test of details? Increase in Tolerable Misstatement
Increase in Assessed Level of Control
Risk
a.Decrease sample size
Decrease sample size
b
.
Decrease sample size
Increase sample size
c.
Increase sample size
Decrease sample size
d
.
Increase sample size
Increase sample size
9-22
The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation for the fiscal year ended October 31. Michelle Le, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Coomes' inventory account. The balance in the inventory at
October 31 was $4,250,000. Michelle 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. Required:
a.
Calculate the sample size and sampling interval.
Sample size: 124(2)
Sampling interval: 4,250,000/124=34,274.19
b.
Hon Zhu, staff accountant, performed the audit procedures listed in the inventory audit program for each sample item. Using the sample size computed in part (a), calculate the upper limit on misstatement based on the following misstatements (on the next page). What should Hon conclude
about Coomes' inventory account? Error Number
Book Value
Audit Value
1
$
6,000 $ 1,000 = (6000-1000)/6000=0.83
2
24,000
9,000 = (24000-9000)/24000=0.63
3
55,000
5,000 = N/A Upper limit misstatement= 233,571
The computed UML 233,571 is more than the allowable misstatement value of 212,500
Mr. Zhu cannot accept the inventory account since the value is reasonable.
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B.
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A number of factors influences the sample size for a substantive test of details of an
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larger sample size?
a. Smaller measure of tolerable misstatement.
b. Greater reliance on internal control.
c. Smaller expected frequency of errors.
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STATEMENT 1: In an audit sampling application, detection risk arises from the uncertainties of
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STATEMENT 2: Non sampling risk can be reduced to an acceptably low level by a 100%
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A. Only Statement 1 is incorrect
B. Only Statement 1 is correct
C. Both statements are incorrect
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9-13
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s1: The only way to know with certainty whether a sample Is representative is to subsequently audit the entire population. s2: One way to control sampling risk is to increase the sample size. s3: Sampling risk results from the auditor's failure to recognize exceptions in transaction data.
A. all statements are true
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c. s1 and s2 are true
d. s1 and s3 are true
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Chapter 08 Problem 8-26 LO 8-6
Use the sample sizes and the number of deviations determined below.
Parameters
Risk of incorrect acceptance
Tolerable deviation rate.
Expected population deviation rate
Sample size (using tables).
Sample size (using IDEA)
Results
Number of deviations
Sample size
Sample deviation rate -
Computed upper deviation rate using
Tables
1-Sided upper limit using IDEA
Auditor's conclusion
5%
4%
18
156
156
Does support
0
156
Control Procedure
2
00%
20 %
Determine the sample deviation rate, the computed upper deviation rate, and the auditor's conclusion (ie, testing results do or do not
support operating effectiveness of the control) for each control procedure. (For Results, use Table 8-8 & Table 8-9 or IDEA)
Note: Round your rates values to 1 decimal place.
5%
5%
2%
0.00%
181
181
3
10%
7%
3%
94
94
2
4
10%
8%
5
181
2.80 %
6.90 %
0.00%
Does not support
98
98
Control Procedure
4
94
Does not support
%
8.7%
0.00%
Does support
3
98
3.1
%
7.3 %
0.0
%
30
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Question 27, please. It uses the numbers / information from #26. Thank you.
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s1: A stratified sample consist of sampling units selected without conscious bias. s2: All auditing procedures involve audit sampling. s3: A deviation from prescribed control procedures does not necessarily indicate the presence of monetary error
A. all statements are true
b. all statements are false
c. s1 and s2 are true
d. s1 and s3 are true
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STATEMENT 1: If the sampling unit is defined as the individual disbursement entry in the check
register, the sampling frame would be the check voucher and its supporting documents. A
STATEMENT 2: Not all audit tests applied to less than 100% of the populatian are considered audit
sampling applications.
A. Only Statement 1 is incorrect
B. Only Statement 1 is correct
C. Both statements are incorrect
D. Both statements are correct
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8
Audit Sampling is an investigative step or technique where less than 100% of the total items within the population of items are selected to be audited.
Question 8 options:
a) True
b) False
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3. Sample results may not be truly representative of a population due to *
A. Sampling risks
B. Sampling error
C. Nonsampling error
D. Standard deviation
E. All of them
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