Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 17, Problem 22.3MCQ
To determine
Indicate the acceptable scenario.
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. 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?
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.
A component of an account balance has a recorded balance of $10,000 and an audited valueof $8,000. By using monetary unit sampling, if the sampling interval is $20,000, the projected misstatement would bea. $2,000.b. $4,000.c. $5,000.d. $10,000.
Chapter 17 Solutions
Auditing And Assurance Services
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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.arrow_forwardEvaluate the following statement made by an auditor: “I took arandom sample and derived a 90 percent confidence interval of $800,000 to $900,000.That means that the true population value will be between $800,000 and $900,000, 90percent of the time.”arrow_forwardAn 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. $5,500arrow_forward
- When 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.arrow_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? 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_forward
- You are auditing accounts receivable for a small company and have found the following results: Number and Size of Client Accounts Book Value of Stratum Book Value of Sample Audit Value of Sample 1,202 accounts < $1,000 $ 1,000,000 $ 75,000 $ 60,000 532 accounts > $1,000 $ 777,504 $ 36,400 $ 34,400 Use ratio projection to project your results. Show your final results. and label appropriately.arrow_forwardAn 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_forwardSay that an analyst has looked at a random sample of 50 companies in the S&P 500 to understand the association between a stock's P/E ratio and subsequent 12-month performance in the market. Assume that the resulting estimate is -0.20, indicating that for every 1.0 point in the P/E ratio, stocks return 0.2% poorer relative performance. In the sample of 52, the standard deviation was found to be 2.7. What is the standard of error?arrow_forward
- 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. 195arrow_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_forwardAssume that you have selected a random sample of 15 checks from a population of 800 checks. The checks you have selected are the following numbers: 664, 789, 650, 136, 365, 538, 800, 657, 110, 136, 398, 645, 214, 544, and 777. Based on this sample, evaluate the truth of the following statements regarding your findings. Describe why you feel each statement is true or false. a. You have determined that Check No. 365 was not properly signed and was paid to a fictitious vendor. You conclude that fraud exists in the population. b. You have determined that no fraud exists in the sample of 15 checks you evaluated. You conclude that no fraud exists in the population.arrow_forward
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