Auditing and Assurance Services, Student Value Edition (16th Edition)
16th Edition
ISBN: 9780134075754
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 33DQP
a.
To determine
State the way Person A should interpret CUER 7.92%
b.
To determine
State the reason for making the Person A to conclude about the effectiveness of the control based on one attribute deviation.
c.
To determine
Provide the alternatives to be used by Person A to determine that control cannot be relied.
d.
To determine
State whether the information gathered from the controller will be helpful for Person A to ascertain the information will be more relevant for discussing the alternatives in the requirement c and also explain the type of testing and documentation that would be used in order to conclude that the control can be relied upon.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Sample Size Determination. Jule Phillips is examining the internal control of CowboyCompany and has identified the mathematical verification of sales invoices as an importantcontrol and decided to test this control. Based on a discussion with Cowboy’s management,Phillips determined that Cowboy Company’s employees were required to indicate their compliance with this control by writing their initials in an appropriate place on the invoice copy.Assume that Phillips established an acceptable risk of overreliance of 5 percent, anexpected population deviation rate of 3 percent, and a tolerable rate of deviation of 9 percent.Required:a. Using AICPA sample size tables, determine the appropriate sample size.b. Indicate how Phillips would assess the three parameters that are used to determine sample size (risk of overreliance, expected population deviation rate, and tolerable rate ofdeviation).c. Use the original parameters but now assume that Phillips is willing to increase the acceptable risk…
Evan Kristopher, CPA intends to use probability-proportional-to-size sampling. He has properly selected and audited a sample of 100 accounts receivable from his client’s population of 3,000 accounts. He calculated a sampling interval of $6,000 and the tolerable misstatement for the account is $30,000.
Evan also recalls that “basic precision” is equal to the appropriate reliability factor multiplied times the sampling interval. He wishes to accept a risk of incorrect acceptance of 10%.
He found that 97 of the 100 accounts in the sample were properly calculated. However, the following three errors existed:
Book Value
Audited Value
$75
$70
1,000
750
9,300
6,720
Required:
Calculate the projected misstatement.
Calculate the basic precision.
Calculate the incremental allowance.
Calculate the upper limit on misstatement.
What would the auditors’ conclusion be for the population based on the analysis?
Evan Kristopher, CPA intends to use probability-proportional-to-size sampling. He has properly selected and audited a sample of 100 accounts receivable from his client’s population of 3,000 accounts. He calculated a sampling interval of $6,000 and the tolerable misstatement for the account is $30,000.
Evan also recalls that “basic precision” is equal to the appropriate reliability factor multiplied times the sampling interval. He wishes to accept a risk of incorrect acceptance of 10%.
He found that 97 of the 100 accounts in the sample were properly calculated. However, the following three errors existed:
Book Value
Audited Value
$75
$70
1,000
750
9,300
6,720
Required:
Calculate the projected misstatement.
Calculate the basic precision.
Calculate the incremental allowance.
Calculate the upper limit on misstatement.
What would the auditors’ conclusion be for the population based on the analysis?
explain please
Chapter 15 Solutions
Auditing and Assurance Services, Student Value Edition (16th Edition)
Ch. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Prob. 8RQCh. 15 - Prob. 9RQCh. 15 - Prob. 10RQ
Ch. 15 - Prob. 11RQCh. 15 - Prob. 12RQCh. 15 - Prob. 13RQCh. 15 - Distinguish between the TER and the CUER. How is...Ch. 15 - Prob. 15RQCh. 15 - Prob. 16RQCh. 15 - Prob. 17RQCh. 15 - Prob. 18RQCh. 15 - Prob. 19RQCh. 15 - Prob. 20RQCh. 15 - Prob. 21RQCh. 15 - Prob. 22.1MCQCh. 15 - Prob. 22.2MCQCh. 15 - Prob. 22.3MCQCh. 15 - Prob. 23.1MCQCh. 15 - Prob. 23.2MCQCh. 15 - Prob. 23.3MCQCh. 15 - Prob. 24.1MCQCh. 15 - Prob. 24.2MCQCh. 15 - Prob. 24.3MCQCh. 15 - Prob. 25.1MCQCh. 15 - Prob. 25.2MCQCh. 15 - Prob. 25.3MCQCh. 15 - Prob. 27DQPCh. 15 - Lenter Supply Company is a medium-sized...Ch. 15 - Prob. 29DQPCh. 15 - Prob. 30DQPCh. 15 - Prob. 31DQPCh. 15 - Prob. 32DQPCh. 15 - Prob. 33DQPCh. 15 - Prob. 34DQPCh. 15 - Prob. 35DQPCh. 15 - Prob. 36CCh. 15 - Prob. 37ICA
Knowledge Booster
Similar questions
- 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.arrow_forwardIndicate whether you agree or disagree with the following statements and explain your reasoning. Joseph Cabana was explaining to Carl Metz how sampling risk works for the audit team: "Non- sampling risk is the risk that as auditors we will arrive at a conclusion that has nothing to do with sampling issues." Kendal Clarke was auditing the miscellaneous expense account. She decided to chose every transaction that had a value of $20,000 or higher. Kendal is performing a statistical sampling technique known as systematic selection. Melissa Wilson had concluded that control risk was low for her audit client. Therefore, she decided that the most appropriate audit strategy was a combined audit strategy.arrow_forwardEvaluating Results: Classical Variables Sampling. Kyle Berry is using mean-per-unit estimation in the audit of Leonard’s inventory balances. Leonard’s inventory is recorded at $240,000 and comprises 1,200 different items. Berry determined a sample size of 120 items and performed the appropriate substantive procedures. Based on this sample, he determined the following: Average audited value (per item) $204 Standard deviation of audited values $ 22 A summary of some additional parameters estimated by Berry follow: Tolerable misstatement $ 17,500 Expected misstatement $ 7,500 Risk of incorrect acceptance 5% Risk of incorrect rejection 10% Required:a. What is Berry’s estimate of the audited value of Leonard’s inventory?b. Calculate the precision and precision interval for Leonard’s inventory. Provide a briefdescription of the meaning of the precision interval.c. What is Berry’s conclusion with respect to Leonard’s inventory balance?d. Using a risk of incorrect…arrow_forward
- 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 samplingarrow_forwardSample Size and Sampling Interval Determination: Monetary Unit Sampling. BlytheDrake is conducting an audit of Newman and is using MUS to select a sample of customer accounts receivable for confirmation. Newman’s accounts receivable are recorded at$10,000,000 and comprise 2,000 customer accounts. Drake has established the followingparameters for the investigation:∙ Risk of incorrect acceptance = 5%.∙ Tolerable misstatement = $250,000.∙ Expected misstatement = $50,000.Required:a. Determine the sample size and sampling interval that Drake used in the audit of Newman’s accounts receivable.b. Based on the calculations in part (a), briefly describe how Drake would select customeraccounts from the population of accounts receivable balances for confirmation.c. Holding all other factors constant, determine the sample size and sampling intervalassuming each of the following independent changes in Drake’s sampling parameters:1. Because of improvements in Newman’s internal control policies…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
- Attributes Sampling with IDEA: Evaluating Sample Results. Based on a population sizeof 388 shipments, a 10 percent desired risk of overreliance, an expected population deviation rate of 1 percent, and a tolerable rate of deviation of 6 percent, the audit team selected asample of 58 items.In performing tests of controls, your audit team identified three shipments that were notsupported by an approved sales order and concluded that these represent deviations from thecontrol activity.Required:a. Use IDEA to determine the ULRD. What would the audit team’s conclusion be withrespect to the functioning of ELM’s control over the authorization of sales transactions?Part (b) is a set of independent scenarios that affect the evaluation of sample results.b. For each of the following numbers of deviations, use IDEA to determine the ULRD andprovide the audit team’s conclusion with respect to the functioning of ELM’s controlover the authorization of sales transactions.1. 0 deviations.2. 1…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_forwardThe accounting department of the client reports that the balance of Accounts Receivable is $210,000. Using classical variable sampling, the auditor computes an estimated total population value of $216,500 and computed a 95% achieved allowance for sampling risk of +- $8,500. The auditor should conclude that the accounts receivable balance is fairly stated. on Select one: O a. False Ob. True Iarrow_forward
- An auditor is determining the appropriate sample size for testing inventory valuation using MUS The population has 3,140 inventory items valued at Calculate the preliminary sample size. Select the formula, then enter the amounts and calculate the sample size. (Abbreviation used TM tolerable misstatement Enter amounts in the for (Click the icon to view the table for determining the confidence factor) Confidence Factor 4.33 TM as Percentage of Population Value 39.75 ECCEED Sample Sizearrow_forwardSample Size Relationships: Monetary Unit Sampling. Noel Frehley is examining theaccounts receivable of Kiss Company and is considering the use of MUS. Kiss’s accountsreceivable are recorded at $400,000. Based on the necessary level of risk, Frehley has established a risk of incorrect acceptance of 5 percent. In addition, based on previous audits,Frehley estimates misstatements of $10,000. Finally, based on the overall level of performance materiality, Frehley has established tolerable misstatement at $20,000.Required:a. Determine the necessary sample size for Frehley’s examination of Kiss Company’saccounts receivable.b. Assume that Frehley was interested in trying to reduce the necessary sample size. Whatare some options available in this regard?c. Based on a discussion with the senior manager, Frehley knows that increasing the level ofthe risk of incorrect acceptance will reduce sample size. For the same level of expectedmisstatement, tolerable misstatement, and population size,…arrow_forwardSample Size and Sampling Interval Determination: Monetary Unit Sampling. CaseyPaul is considering the use of MUS in examining Stanley’s accounts receivable, which wererecorded at $300,000. Using the audit risk model, Paul has identified a necessary risk ofincorrect acceptance of 10 percent and has established a tolerable misstatement of $25,000and an expected misstatement of $10,000.Required:a. Determine the necessary sample size for the audit of Stanley’s accounts receivable.b. Based on the sample size determined in part (a), what is the appropriate sampling interval?c. Briefly describe how Paul would select the sample from a computerized customer listthat Stanley maintains.d. How would each of the following changes in Paul’s sampling plan impact the sample size andsampling interval? For each change, use the original parameters noted in the problem. (Verifyyour answer by calculating the sample size associated with each change.)1. A reduction in the necessary level of the risk of…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 (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning