Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 17, Problem 31DQP
To determine
Determine
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Kendall Jackson, CPA, is examining the operating effectiveness of the internal control of Town Mo, a large conglomerate in the music industry. As partof the evaluation, Jackson determined a necessary sample size of 93 items (based on a tolerable rate of deviation of 5 percent, an expected population deviation rate of 0.5 percent, anda risk of overreliance of 5 percent). After properly selecting the 93 items, Jackson found nodeviations from the prescribed control activities.Required:a. Based on Jackson’s sample, determine the sample rate of deviation and ULRD. (Becausethe AICPA sample evaluation tables do not contain a row for a sample size of 93, rounddown and use a sample size of 90.)b. Explain the difference between the ULRD and the sample rate of deviation observed in part(a). How does this difference relate to the use of statistical sampling?c. What would Jackson conclude with respect to the operating effectiveness of Town Mo’sinternal control?
In non-statistical sampling, _______.
the auditor determines samples size, sample selection methods, and evaluates the sample results on the basis of the professional judgment and the auditor’s own experience.
the auditor determines samples size, sample selection methods, and evaluates the sample results entirely on the basis of predetermined statistical parameters.
the auditor uses the internal audit function to gather samples
the auditor selects a sample of certain balance sheet accounts and exclusively audits them
If an auditor wishes to draw attention to important information that is already presented or disclosed in the financial statements, the auditor would include a _______.
qualified opinion
disclaimer of opinion
emphasis-of-matter paragraph
scope limitation paragraph
_______ are used near the end of the audit to assist the auditor in forming an overall conclusion about whether the financial statements…
.Dan and Lily, two audit staff associates are discussing audit sampling while working on the audit of a major client. Dan is explaining to Lily the various audit sampling methods that he has seen being used by audit managers. Dan asks Lily if she has ever heard of the ratio method with respect to evaluating sample results. Lily replies that she has not, so they decide to ask their supervisor, Brad. What would be the best answer from Brad to appropriately answer this question
Chapter 17 Solutions
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
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- TRUE OR FALSE When evaluating the results of specific items selected for testing, its effects must be projected to the whole population. Audit sampling refers to the application of audit procedures to less than 100% of the items in account balance or class of transactions for the purpose of evaluating some of its characteristics. In performing external confirmations, the management prepares the requests and receives and replies for communication to the auditor. One of the ways to gain knowledge of any lirigations and claims is through an examination of professional or legal expenses and related source documents. Related parties generally unreliable in nature which leads to the auditor performing procedures to examine transactions with them.arrow_forwardIn auditing, can anyone who uses sampling be absolutely sure that the sample is representative of the population from which it is drawn? Please provide references if any.arrow_forwardAudit sampling involves applying an audit procedure to less than 100 percent of the population for the purpose of evaluating some characteristic of the population. when an auditor uses sampling, an element of uncertainty enters into the auditor’s conclusions.Required:a. Explain the auditor’s justification for accepting the uncertainties that are inherent in the sampling process.b. Discuss the uncertainties that collectively embody the concept of audit risk.c. Discuss the nature of sampling risk and nonsampling risk. Include the effect of sampling risk on tests of controls.arrow_forward
- The International Standard on Auditing (UK) (ISA (UK)) 530, “applies when the auditor has decided to use audit sampling in performing audit procedures. It deals with the auditor’s use of statistical and non-statistical sampling when designing and selecting the audit sample, performing tests of controls and tests of details, and evaluating the results from the sample.”Required:(a) Define and explain sampling risk (b) State and explain five methods of sample selection and how they function (c) If an auditor wishes to include high-value items in their sample, which of the sample selection methods identified in part (b) would they use? (d) State five scenarios where sampling may not be appropriate.arrow_forwardThe auditor is evaluating the internal control of a new client. Management has prepared its assessment of internal control and has concluded that it has some deficiencies but no significant deficiencies and no material weaknesses. However, in reviewing the work performed by management, including the internal auditor, the auditor observes the following: -Sample sizes taken by the internal auditor were never more than ten transactions, and most of the tests of operating effectiveness were based on a sample of one performed as part of a walkthrough of a transaction.-Management has fired the former CFO and a new CFO has not been appointed, but management indicates it has depth in the accounting area and is searching for a new CFO.-The company has no formal whistleblowing function because management has an “open-door” policy so that anyone with a problem can take it up the line.-Management’s approach to monitoring internal control is to compare budget with actual expenses and investigate…arrow_forwardComplete the statement. The lower the risk of material misstatement, a. the greater the maximum tolerable misstatement b. the higher the audit risk required. c. the later in the year that principal audit test procedures are performed d. the smaller the sample size needed for substantive testingarrow_forward
- When the auditor has assessed control risk of a particular area at a reduced level, he or she will then Select one: a. eliminate the need to gather evidence in that area. b. test the effectiveness of the controls in that area. c. proceed to expand the sample sizes in that area. d. negotiate with management to determine which controls will be tested in that area.arrow_forwardCan someone please help? Thank you. John and Susan are discussing the various audit sampling techniques available to auditing firms after their auditing class one day. John mentions to Susan that he heard the auditing professor discussing standard deviation and sample size as part of classical variables sampling and was confused as he always thought standard deviation had more to do with statistics than auditing. John asks Susan if she understood what the professor was referring to, and if there is any connection to classical variables sampling. What is Susan's best response to this question.arrow_forwardIn auditing, can anyone who uses sampling such as statistical and non-statistical sampling be absolutely sure that the sample is representative of the population from which it is drawn? Please provide references if any.arrow_forward
- If the auditor concludes that audit sampling has not provided a reasonable basis for conclusions about the population that has been tested, the auditor may practically apply which of the following: i) Request management to investigate misstatements that have been identified and the potential for further misstatements ii) Request management to investigate misstatements that have been identified and to make any necessary adjustments iii) Make another completely new audit sampling for test of details iv) Tailor the nature, timing and extent of further audit procedures to best achieve the required assurance. A. i) , ii ) and iii) B. i ) and iii) C. iii) and iv) D. i, ii and ivarrow_forwardComplete the statement. The lower the risk of material misstatement,... a. the greater the maximum tolerable misstatement b. the higher the audit risk required. c. the smaller the sample size needed for substantive testing d. the later in the year that principal audit test procedures must be performedarrow_forwardList and discuss the decisions involving professional judgment that must be made by the CPAs in applying statistical sampling techniques to tests of controls.arrow_forward
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