EBK AUDITING AND ASSURANCE SERVICES
16th Edition
ISBN: 9780134067117
Author: Hogan
Publisher: VST
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Chapter 17, Problem 20.2MCQ
To determine
Identify the projected error of the sample.
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In an MUS sample with a sampling interval of $5,000, an auditor discovered that aselected accounts receivable with a recorded amount of $10,000 had an audit valueof $8,000. If this is the only error discovered by the auditor, the projected error ofthe sample would be(1) $1,000. (3) $4,000.(2) $2,000. (4) $5,000.
Assume that an account with a recorded balance of $5,000 has an audited value of $3,000. By using monetary unit sampling, if the sampling interval is $1,500, the projected misstatement would bea. $600.b. $900.c. $2,000.d. $3,000.
An auditor is using PPS Sampling to determine the projected error in Accounts Receivable. Two errors were discovered:
Error #1: Book Value of $400, Audit Value of $100
Error #2: Book Value of $6,000, Audit Value of $2,000
The Sampling Interval was $2,000
Total Projected Error is:
a.
$2,100
b.
$2,833
c.
$4,300
d.
$2,300
e.
$5,500
Chapter 17 Solutions
EBK AUDITING AND ASSURANCE SERVICES
Ch. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - Prob. 10RQ
Ch. 17 - Prob. 11RQCh. 17 - Prob. 12RQCh. 17 - Prob. 13RQCh. 17 - Prob. 14RQCh. 17 - Prob. 15RQCh. 17 - Prob. 16RQCh. 17 - Prob. 17RQCh. 17 - Prob. 18RQCh. 17 - Prob. 19.1MCQCh. 17 - Prob. 19.3MCQCh. 17 - Prob. 19.2MCQCh. 17 - Prob. 20.1MCQCh. 17 - Prob. 20.2MCQCh. 17 - Prob. 20.3MCQCh. 17 - Prob. 21.1MCQCh. 17 - Prob. 21.3MCQCh. 17 - Prob. 21.2MCQCh. 17 - Prob. 22.1MCQCh. 17 - Prob. 22.2MCQCh. 17 - Prob. 22.3MCQCh. 17 - Prob. 23DQPCh. 17 - Prob. 24DQPCh. 17 - Prob. 25DQPCh. 17 - Prob. 26DQPCh. 17 - Prob. 27DQPCh. 17 - Prob. 28DQPCh. 17 - Prob. 29DQPCh. 17 - Prob. 30DQPCh. 17 - Prob. 31CCh. 17 - Prob. 32C
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- d. Assume that based on additional controls implemented by ELM, your audit team has decided to reduce the expected misstatement from $77,928 to $19,482 (0.5 percent of the recorded balance of the transactions). What is the necessary sample size, holding all other factors constant?arrow_forwardUpper Limit on Misstatements Calculation: Monetary Unit Sampling. Carson Allister is performing an MUS application in the audit of Bird Company’s accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a sample size of 75 items and a sampling interval of$25,000. After examining the sample items, the following misstatements were identified: Item Recorded Balance Audited Value 1 $35,000 $28,000 2 10,000 8,000 3 6,000 3,000 Required:a. Calculate the upper limit on misstatements for Bird Company’s accounts receivable.b. Provide a brief description of the meaning of the upper limit on misstatements calculatedin part (a).c. What would Allister’s conclusion be with respect to the fairness of Bird’s accountsreceivable balance?arrow_forward. The true proportion of accounts receivable with some kind of error is 8 percent for Moby Group. If an auditor randomly samples 100 accounts receivable, a) is it acceptable to use the normal approximation to estimate the probability that fewer than two will contain errors? Explain your reasoning. b) what is the mean and standard deviation of errors? c) assume the auditor takes a sample of 150, what is the probability that less than 5 will contain errors?arrow_forward
- Sample 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_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_forwardAssume the following misstatements were found in a PPS sample. Sample Item Book Value Audit Value $650 $585 540 0 (a) 1. 1 2. 2 3 4 5 1,900 2,200 2,800 0 Calculate the projected misstatement assuming: 1,650 2.660 The sampling interval was $1,800. $ The sampling interval was $2,000. $arrow_forward
- 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 pleasearrow_forwardEvan 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?arrow_forwardUpper Limit on Misstatements Calculation: Monetary Unit Sampling. Jordan Thomas is using MUS to examine a client’s accounts receivable balance. Using a sample size of 100 items and a sampling interval of $12,300, Thomas identified the following misstatements: Item Recorded Balance Audited Value 1 $15,000 $12,500 2 10,000 4,000 3 3,000 2,000 Required:a. Calculate the upper limit on misstatements assuming a risk of incorrect acceptance of (1) 5 percent and (2) 10 percent.b. Based on your calculations in part (a), comment on the relationship between the risk of incorrect acceptance and the upper limit on misstatements.arrow_forward
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