g 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 your response, answer in the following format: A. and B. Potential Action Advantages Disadvantages

g 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 your response, answer in the following format: A. and B. Potential Action Advantages Disadvantages

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter15: Audit Reports For Financial Statement Audits

Section: Chapter Questions

Problem 33RQSC

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Similar questions

In performing a test of controls for ABC, Inc., the auditor wants to know whether Sales order are approved before goods are picked, packed and shipped to customers. The CPAs has stipulated a Tolerable Deviation Rate (TDR) of 8 percent with a Risk of Assessing Control Risk too low of 5 percent. The CPA also anticipates a deviation rate of 2%. What type of sampling plan should the auditor use for this test? Attribute sampling Monetary sampling
Baily Cox, an audit manager, judged that the test of controls of the company’s 50,000 purchase transactions should be based on a tolerable rate of deviation of 6 percent, a risk of overreliance of 5 percent, and an expected population deviation rate of 3 percent. Using AICPAsample size tables, Cox determined that the appropriate sample size in this situation would bea. 49.b. 78.c. 132.d. 195
An 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).
Which of the following timing of inventory count is the best based on the auditor’s point of view when the control risk is assessed at maximum and when there is a high inherent risk for the client? A. Inventory count just after year-endB. Inventory count at year-endC. Inventory count just before year-endD. All of the following are equal and the auditor can choose oneE. Inventory count must be done before year-end, at year-end and after year-end
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.
Hattab auditing Co. was conducting the audit of Metro market for the fiscal year ended December 31. The auditor decides that MUS is the appropriate sampling technique to use in order to audit Metros’ inventory account. The balance in the inventory at December 31 was $3,000,000. The auditor has established the following: the desired confidence level of 90%, tolerable misstatement $270,500, and expected misstatement $65,500. Requirement: 1- Calculate the sample size and sampling interval. 2- The staff accountant performed the audit procedures listed in the invent+ory audit program for each sample item. Using the sample size computed in requirement (1), calculate the upper limit on misstatement based on the following misstatements. Error Number Book Value Audit Value 1 6,000 $ 1,000 $ 2 24,000 $ 39,000 $ 3 55,000 $ 57,000 $
Francona Madden, an audit manager, considered the control risk assessments listed in theleft column of the following table in evaluating A. Cardinal’s internal control over salestransactions. The sample sizes for the substantive procedures of the customer accountsreceivable are shown to the right of each control risk. What risk of overreliance (ROO)could be assigned for tests of controls at each control risk level? Control Risk Accounts Receivable Sample ROO 0.20 400 ? 0.50 390 ? 0.80 350 ? 0.90 190 10% a. From top to bottom: 5 percent, 10 percent, 1 percent.b. From top to bottom: 10 percent, 1 percent, 5 percent.c. From top to bottom: 1 percent, 10 percent, 5 percent.d. From top to bottom: 1 percent, 5 percent, 10 percent.
Trena selected 20 invoices to test the control that the sales clerk checks that the pricesagree with the authorised price list. She found three instances where the sales clerk had notsigned the ‘prices checked’ box on the invoice. The sales manager explained that the salesclerk always checks the prices, but sometimes forgets to sign the box. As the prices on all theinvoices agreed with the authorised price list, Trena concluded that the control was operatingsatisfactorily.Required:For each of the five scenarios presented above, indicate whether you believe that sufficientappropriate audit evidence was obtained to support the conclusions reached. Give reasons foryour decision
A CPA company is conducting the audit of Finch Hardware Company for the year ended December 31. The senior-in-charge of the audit plans to use MUS to audit Finch’s inventory account. The balance at December 31 was $9,000,000, tolerable misstatement is $360,000, expected misstatement is $90,000, and the risk of incorrect acceptance is 5%. Compute the required MUS sample size and sampling interval using Table 8-5 in the textbook (round your interval answer to the nearest whole number).
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
You have been asked to test the effectiveness of Ingo Corporation’s control of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. Jian Zhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 6 percent (although she expects the rate to be only approximately 1.00 percent) and a 5 percent risk of assessing control risk too low. Use the following to determine the planned assessed level of control risk and the assessed level of control risk. a. Use Figure 9.5 to determine the achieved upper deviation rate and the above table to determine the assessed level of control risk under the following circumstances. Assume that the sample size was 75 items. (Round your answers to 1 decimal place.)
You have been asked to test the effectiveness of Ingo Corporation controls of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases of which 3,000 were over $25000. Jian Zhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 4% (although she expects the rate to be only appropriately 0.25 percent) and a 5 percent risk of assessing control risk too low.What is the planned level of control risk?