In performing tests of controls over authorization of bad debt write-offs, which of the following statistical sampling methods would be most appropriate? a. Attributes. b. Stratified. c. Ratio. d. Variables. e. Systematic.
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- Assume that you are using attributes sampling to test the controlsover revenue recognition of the Packet Corporation, a public company.You will use the results as part of the evidence on which to baseyour opinion on internal controls and to determine what substantiveauditing procedures you should performed on revenue and accountsreceivable. You have decided to test the following controls and have setthe risk of overreliance at 5%, the tolerable deviation rate at 5%, and the expected deviation rate at 1%. A sample size of 100 is used. (Notethat this sample size is just rounded up from the sample size of 93 thatwould have been obtained from the appropriate table.) The results ofyour testing are as indicated here. a. Determine the upper limit of deviation for each of the controls.b. What impact do these results have on the type of opinion to begiven on the client’s internal controls?c. Indicate the potential misstatements that could result from thecontrol deviations.d. Determine what…Sam Ple, auditor, has decided to rely on an audit client’s debtors. Sam Ple plans to use sampling to obtain substantive evidence concerning the reasonableness of the client’s debtors/accounts receivable balances.Required:Identify and analyse the steps that Sam Ple should include in the outline of the sampling plan providing examples and illustrationsMUS is based on attribute sampling theory but modified to evaluate monetary conclusion rather than the rate of occurrence. This can give the impression that MUS is more advanced than RUS since it utilizes the monetary conclusion rather than the rate of occurrence to evaluate statistical findings. MUS is perfect for measuring how many dollars are incorrect, while attribute sampling is excellent for determining the deviation rate. In your opinion, which approach is the most effective when evaluating the effectiveness of customer credit checks?
- Some account balances such as those for pensions and leases are the result of complex calculations. The susceptibility to material misstatements in these types of accounts is defined as a. Sampling risk b. Detection risk c. Inherent risk. d. audit riskWhen the auditor uses monetary unit statistical sampling to examine the totaldollar value of invoices, each invoice(1) has an equal probability of being selected.(2) can be represented by no more than one monetary unit.(3) has an unknown probability of being selected.(4) has a probability proportional to its dollar value of being selected.Attribute 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?
- How do bank confirmations differ from positive confirmations ofaccounts receivable? Distinguish between them in terms of the nature of the informationconfirmed, the sample size, and the appropriate action when the confirmation is notreturned after the second request. Explain the rationale for the differences between thesetwo types of confirmationsWhich of the following risk types increase when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date?a. Inherent.b. Control.c. Detection.d. Sampling.Which of the following audit procedures is least effective for detecting unrecorded long-term debt at the balance sheet date? Question options: Confirming long-term debt. Confirming cash. Testing cash disbursements in the subsequent year. Analyzing the ratio of current interest expense to average long-term debt.
- To allocate the preliminary estimate of materiality to the accounts, the auditor might consider A. The relative variability of the accounts. B.The size, in absolute terms, of each account. C.Using the audit risk equation to calculate the amount of materiality to each account. D.Adjusting detection risk for each account to arrive at consistent materiality amounts across accounts.One of your audit planning procedures was the ratio analysis. You noted that the debt to assets ratio of your client is 0.3. Is that good? Explain.Which of the following increase control risk? Select which two options are correct. Select one or more: A. Lack of segregation of duties B. Reduction in sample size for substantive tests C. Optimistic forecasts presented to analysts D. Reduction in the size of the internal audit group
