![EP AUDITING+ASSURANCE...-MYACCT.LAB](https://www.bartleby.com/isbn_cover_images/9780134148656/9780134148656_largeCoverImage.gif)
EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 34DQP
a.
To determine
Identify the observations are as exception.
b.
To determine
Describe the reasons for setting up of single acceptable TER and EPER for the combined exceptions.
c.
To determine
Calculate SER for each attribute tested in the population.
d.
To determine
Calculate TER – SER for each attribute and evaluate whether the calculated allowance for sampling risk is sufficiently large agreed the 5% ARO assuming TER is 6% for each attribute.
e.
To determine
Identify the appropriate analysis of exceptions for each of the exceptions in the sample, including additional procedures to be performed
Expert Solution & Answer
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Students have asked these similar questions
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…
For the audit of the financial statements of Mercury Fifo Company,Stella Mason, CPA, has decided to apply nonstatistical audit sampling in the testsof controls and substantive tests of transactions for sales transactions. Based on herknowledge of Mercury’s operations in the area of sales, she decides that the EPER is likelyto be 3% and that she is willing to accept a 5% risk that the true population exceptionrate is not greater than 6%. Given this information, Mason selects a random sampleof 150 sales invoices from the 5,000 generated during the year and examines them forexceptions. She notes the following exceptions in her audit schedules. There is no otherdocumentation.InvoiceNo. Comment5028 Sales invoice was originally footed incorrectly but was corrected by client before the billwas sent out.6791 Voided sales invoice examined by auditor.6810 Shipping document for a sale of merchandise could not be located.7364 Sales invoice for $2,875 has not been collected and is 6 months past…
The 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
1.0
Chapter 15 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
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
- Several independent audit situations are presented here. Assume that everything other than what is described would have resulted in an unqualified opinion on the company’s financial statements. Indicate the type of opinion you believe should be expressed in each situation and explain your choice. If an explanatory paragraph is needed, indicate whether it should precede or follow the opinion paragraph. a. The auditor was unable to obtain confirmations from two of the client’s major customers that were included in the sample. These customers wrote on the confirmation letters that they were unable to confirm the balances because of their accounting systems. The auditor was able to achieve satisfaction through other audit procedures. b. The client treated a lease as an operating lease, but the auditor believes it should have been accounted for as a capital lease. The effects are material. c. The client changed from FIFO to LIFO this year. The effect is material. Address the following two…arrow_forwardSeveral independent audit situations are presented here. Assume that everything other than what is described would have resulted in an unqualified opinion on the company’s financial statements. Indicate the type of opinion you believe should be expressed in each situation and explain your choice. If an explanatory paragraph is needed, indicate whether it should precede or follow the opinion paragraph. a. The auditor was unable to obtain confirmations from two of the client’s major customers that were included in the sample. These customers wrote on the confirmation letters that they were unable to confirm the balances because of their accounting systems. The auditor was able to achieve satisfaction through other audit procedures. b. The client treated a lease as an operating lease, but the auditor believes it should have been accounted for as a capital lease. The effects are material. c. The client changed from FIFO to LIFO this year. The effect is material. Address the following two…arrow_forwardSeveral independent audit situations are presented here. Assume that everything other than what is described would have resulted in an unqualified opinion on the company’s financial statements. Indicate the type of opinion you believe should be expressed in each situation and explain your choice. If an explanatory paragraph is needed, indicate whether it should precede or follow the opinion paragraph. a. The auditor was unable to obtain confirmations from two of the client’s major customers that were included in the sample. These customers wrote on the confirmation letters that they were unable to confirm the balances because of their accounting systems. The auditor was able to achieve satisfaction through other audit procedures. b. The client treated a lease as an operating lease, but the auditor believes it should have been accounted for as a capital lease. The effects are material. c. The client changed from FIFO to LIFO this year. The effect is material. Address the following two…arrow_forward
- You are auditing Big Fresh Pty Ltd, and your manager has asked you to perform the following for the revenue account. Select a sample of sales from the sales journal and agree on the details in the journal to the sales invoices, delivery dockets and customer orders. Required: Explain which assertion for the revenue account would be addressed by this test and why? What kind of test of details is this? Any other assertion is provided by the above test apart from in part A.arrow_forwardBlake and Caroline, two audit managers assigned to the audit of Legolas Enterprises are discussing samples and sample sizes in conjunction with the audit of the client's system of internal control. Blake mentions that back in college when he took an auditing class, he recalled the professor saying that audit sample size was tied to the level of assurance that the auditor ultimately wished to obtain. Which of the following responses by Caroline is most likely to help Blake understand this connection? O The professor was mistaken. There really isn't any relationship between the level of assurance the auditor wishes to obtain and the sample sizes used in an audit. O Although there is a definite relationship between desired level of assurance and sample size, most auditors simply audit the population of interest when they wish to increase the desired level of assurance. O Generally speaking, if an auditor wishes to increase the desired level of assurance, he or she will typically increase…arrow_forwardDuring the audit of Seahorse LLC, the external auditors, Packhorse CPAS, have just completed their audit of the clients system of internal control and have documented their findings accordingly. One of Packhorse CPAs audit managers is discussing the results of the internal control audit with an audit intern, Halle. Halle is curious as to what the auditing firm will do with this information and these findings, and whether it affects any future parts of the audit. Which of the following responses is correct with respect to helping Halle understand this? • The audit of internal control is performed by the audit firm to comply with generally accepted auditing standards. With this part of the audit complete, the auditor can render an opinion on the client's financial statements. • Once the audit of the client's system of internal control is complete, the auditor examines the findings and apprises the client's management of any weaknesses in a timely manner. If weaknesses in internal control…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_forwardAt the completion of every audit, Roger Morris, CPA, calculates alarge number of ratios and trends for comparison with industry averages and prior-yearcalculations. He believes the calculations are worth the relatively small cost of doing thembecause they provide him with an excellent overview of the client’s operations. If the ratiosare out of line, Morris discusses the reasons with the client and often makes suggestionson how to bring the ratio back in line in the future. In some cases, these discussions withmanagement have been the basis for management consulting engagements. Discuss themajor strengths and shortcomings in Morris’s use of ratio and trend analysis.arrow_forwardGeneral Attributes Sampling. Frazier Holyfield, a new staff accountant, is evaluatingimportant controls over the revenue cycle and, more specifically, assessing the operatingeffectiveness of the control that all shipments made to customers by Top Rank Inc. havebeen properly invoiced.Required:Comment on the following actions that Holyfield performed. You should evaluate eachaction independently of any other actions.a. Holyfield decided to inspect documentary evidence that all shipments made by Top Rankhave been invoiced by matching shipping documents with invoices. Accordingly, shehas identified the population from which she intends to sample as all sales invoices. TopRank has a computerized list of invoiced sales that she can use to select the appropriatesample.b. Because Holyfield plans to place a high degree of reliance on this particular control, sheassesses the risk of overreliance at 5 percent. In previous years, a 10 percent level wasused, but consultation with the engagement…arrow_forward
- In an audit sampling application, an auditora. Performs procedures on all items in a balance and makes a conclusion about the entirebalance.b. Performs procedures on less than 100 percent of the items in a balance and formulates aconclusion about the entire balance.c. Performs procedures on less than 100 percent of the items in a class of transactions tobecome familiar with the client’s accounting system.d. Performs analytical procedures on the client’s unaudited financial statements when planning the audit.arrow_forwardAudit risks for particular accounts and disclosures can be conceptualized in the model: Audit risk (AR) = Inherent risk (IR) × Control risk (CR) × Detection risk (DR). Use this model as a framework for considering the following situations and deciding whether the auditor’s conclusion is appropriate.a. Paul, CPA, has participated in the audit of Tordik Cheese Company for five years, first as an assistant accountant and the last two years as the senior accountant. Paul has never seen an accounting adjustment recommended and believes the inherent risk must be zero.b. Hill, CPA, has just (November 30) completed an exhaustive study and evaluation of the internal controls of Edward Foods Inc. (fiscal year ending December 31). Hill believes the control risk must be zero because no material errors could possibly slip through the many error-checking procedures and review layers that Edward used.c. Fields, CPA, is lazy and does not like audit jobs in Philadelphia. On the audit of Philly…arrow_forwardQuestions - Images to these questions are attached below. (a) Recommend SIX tests of controls the auditor would normally carry out on the sales system of Tinkerbell, and explain the objective for each test. (b) Describe substantive procedures the auditor should perform to confirm Tinkerbell’s yearend receivables balance (c) Identify and explain controls Tinkerbell should implement to reduce the risk of fraud occurring again and, for each control, describe how it would mitigate the risk. (d) Describe substantive procedures the auditor should perform to confirm Tinkerbell’s revenue.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
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning