Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 17, Problem 34DQP
a.
To determine
Plan the
b.
To determine
Plan the sample size for the test of pricing inventories using MUS.
c.
To determine
To plan the combined sample size both for conformation of accounts receivable and the price test of inventory using MUS.
d.
To determine
To generate a list of random dollars in generation order and in ascending order for sample of accounts receivable determined in part a
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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
A CPA company is conducting the audit of Finch Hardware Company for the year ended December 31. The senior-in-charge of the audit plans to use MUS to audit Finch’s inventory account. The balance at December 31 was $9,000,000, tolerable misstatement is $360,000, expected misstatement is $90,000, and the risk of incorrect acceptance is 5%. Compute the required MUS sample size and sampling interval using Table 8-5 in the textbook (round your interval answer to the nearest whole number).
For which of the following tests would an auditor most likely use attribute sampling?(1) Selecting accounts receivable for confirmation of account balances.(2) Inspecting employee time cards for proper approval by supervisors.(3) Making an independent estimate of the amount of a LIFO inventory.(4) Examining invoices in support of the valuation of fixed asset additions.
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
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. 19RQCh. 17 - Prob. 20RQCh. 17 - Prob. 21.1MCQCh. 17 - Prob. 21.2MCQCh. 17 - Prob. 21.3MCQCh. 17 - Prob. 22.1MCQCh. 17 - Prob. 22.2MCQCh. 17 - Prob. 22.3MCQCh. 17 - Prob. 23.1MCQCh. 17 - Prob. 23.2MCQCh. 17 - Prob. 23.3MCQCh. 17 - Prob. 24.1MCQCh. 17 - Prob. 24.2MCQCh. 17 - Prob. 24.3MCQCh. 17 - Prob. 25DQPCh. 17 - Prob. 26DQPCh. 17 - Prob. 27DQPCh. 17 - Prob. 28DQPCh. 17 - Prob. 29DQPCh. 17 - Prob. 30DQPCh. 17 - Prob. 31DQPCh. 17 - Prob. 32DQPCh. 17 - Prob. 34DQPCh. 17 - Prob. 35DQP
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- An audit firm is conducting the audit of Diaz Construction Company for the fiscal year ended October 31. Rebecca Smith, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Diaz’s inventory account. The balance in the inventory at October 31 was $4,250,000. Rebecca has established the following: risk of incorrect acceptance = 5% (i.e., the desired confidence level of 95%), tolerable misstatement = $212,500, and expected misstatement = $63,750. Calculate the sample size and sampling interval using Table 8-5 in the textbook (round your interval answer to the nearest whole number).arrow_forwardFor which of the following audit tests would an auditor most likely use attribute sampling? Making an independent estimate of the amount of FIFO Inventory. Examining invoices in support of the valuation of fixed asset additions. Selecting accounts receivable for confirmation of account balances Inspecting employee time cards for proper approval by supervisors.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_forward
- Lauren Yost & Co., a medium-sized CPA firm, was engagedto audit Stuart Supply Company. Several staff were involved in the audit, all of whomhad attended the firm’s in-house training program on effective auditing methods.Throughout the audit, Yost spent most of her time in the field planning the audit,supervising the staff, and reviewing their work.A significant part of the audit entailed verifying the physical count, cost, and summarization of inventory. Inventory was highly significant to the financial statements, and Yostknew the inventory was pledged as collateral for a large loan to First City National Bank.In reviewing Stuart’s inventory count procedures, Yost told the president she believedthe method of counting inventory at different locations on different days was highlyundesirable. The president stated that it was impractical to count all inventory on thesame day because of personnel shortages and customer preference. After considerablediscussion, Yost agreed to permit the…arrow_forwardDuring the audit of MJ Precious Metals Inc, the auditor observes the physical count at year-end and recalculates the mathematical accuracy of a sample of inventory on hand. Which of the two test of details results in existence assertion? Both test of details results in existence assertion.Recalculating the mathematical accuracy of a sample of inventory on hand.No test shows the detail results in existence assertion.Observing the physical count at year-end.arrow_forwardIn 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_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_forwardDuring the audit of a large manufacturing company, the auditor did not observe all locations of physical inventory. The auditor chose a random number of sites to visit, and the company’s internal auditors visited the other sites. The auditor has confidence in the competence and objectivity of the internal auditors. The auditor personally observed only about 20% of the total inventory, but neither the auditor nor the internal auditors noted any exceptions in the inventory process. What is the appropriate audit report in this situation: Qualified, or Unqualified? Explain briefly.arrow_forwardJerry Tim is examining an important internal control in the audit of Langly Company. Inpast audits, deviations from this control have been observed at a minimal rate (less than 0.1percent); however, because the account balance affected by this control is highly susceptibleto fraud, it is important that Tim obtain a high level of assurance that deviations occur at nohigher than a predetermined (low) rate. Which of the following sampling methods wouldTim most likely use to evaluate this control?a. Attributes sampling.b. Discovery sampling c. Sequential sampling.d. Statistical sampling.arrow_forward
- Evaluating a Sampling Application. Tom Barton, an assistant accountant with a local CPAfirm, recently graduated from Other University. He studied statistical sampling for auditing in college and wants to impress his employers with his knowledge of modern auditingmethods.Barton decided to select a random sample of payroll checks for the test of controls usinga tolerable rate of deviation of 5 percent and an acceptable risk of overreliance of 5 percent. The senior accountant told Barton that 2 percent of the checks audited last year hadone or more errors in the calculation of net pay. He decided to audit 100 random checks.Because supervisory personnel had paychecks with higher amounts than production workers, he selected 60 of the supervisor checks and 40 checks of the others. He was very carefulto see that the selections of 60 from the April payroll register and 40 from the August payrollregister were random.The audit of this sample yielded two deviations, exactly the 2 percent rate…arrow_forwardFor 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…arrow_forwardBaily 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_forward
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