EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
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Chapter 17, Problem 8RQ
To determine
Determine the preliminary
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An auditor is determining the appropriate sample size for testinginventory valuation using MUS. The population has 2,620 inventory items valued at$12,625,000. The tolerable misstatement is $500,000 at a 10% ARIA. No misstatementsare expected in the population. Calculate the preliminary sample size
Upper Limit on Misstatements Calculations: Monetary Unit Sampling. Clyde Billy isconducting the audit of Hoops Inc. and is examining Hoops’s inventory balances. Billy plansto select a sample of inventory items for examination and will verify quantities and performprice tests to ascertain that the items are properly recorded according to generally acceptedaccounting principles.Billy determined a sampling interval of $100,000 and, using systematic random selectiontechniques, has identified the following misstatements:
Item No.
Recorded Balance
Audited Value
10-865
$ 12,600
$ 8,400
20-954
110,000
95,000
30-781
55,000
44,000
40-269
80,000
60,000
Required:a. Using a 5 percent risk of incorrect acceptance, calculate the upper limit on misstatements.b. Provide a brief description of the meaning of the upper limit on misstatements using theinformation calculated in part (a).c. Reperform part (a) using a risk of incorrect acceptance of 10 percent.d. What relationship do you…
An auditor is determining the appropriate sample size for testing inventory valuation using MUS The population has 3,140 inventory items valued at
Calculate the preliminary sample size.
Select the formula, then enter the amounts and calculate the sample size. (Abbreviation used TM tolerable misstatement Enter amounts in the for
(Click the icon to view the table for determining the confidence factor)
Confidence Factor
4.33
TM as Percentage of Population Value
39.75
ECCEED
Sample Size
Chapter 17 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
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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- Evaluating Results: Classical Variables Sampling. Kyle Berry is using mean-per-unit estimation in the audit of Leonard’s inventory balances. Leonard’s inventory is recorded at $240,000 and comprises 1,200 different items. Berry determined a sample size of 120 items and performed the appropriate substantive procedures. Based on this sample, he determined the following: Average audited value (per item) $204 Standard deviation of audited values $ 22 A summary of some additional parameters estimated by Berry follow: Tolerable misstatement $ 17,500 Expected misstatement $ 7,500 Risk of incorrect acceptance 5% Risk of incorrect rejection 10% Required:a. What is Berry’s estimate of the audited value of Leonard’s inventory?b. Calculate the precision and precision interval for Leonard’s inventory. Provide a briefdescription of the meaning of the precision interval.c. What is Berry’s conclusion with respect to Leonard’s inventory balance?d. Using a risk of incorrect…arrow_forwardSample Size and Sampling Interval Determination: Monetary Unit Sampling. Reagan Simmons is conducting the audit of Ace Inc., and is using MUS to select a sampleof inventory items for examination. The recorded balance in Ace’s inventory account was$1,200,000. In carrying out the sampling plan, Simmons established a risk of incorrectacceptance of 5 percent, a tolerable misstatement of $100,000, and an expected misstatement of $20,000.Required:a. What parameters would Simmons consider in determining the sample size for Ace’sinventory?b. How would Simmons identify or establish each of these parameters?c. Determine the necessary sample size for the audit of Ace’s inventory.d. Based on the sample size determined in part (c), determine the appropriate samplinginterval.e. Briefly describe how Simmons would select the sample from a computerized inventorylist that Ace maintains.arrow_forwardIn 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_forward
- You are evaluating audit results for current assets for your audit client Pepper Ltd. You take a random sample of inventory items worth $10,000 for price test and detect $1,000 worth of overstatements. The total carrying value of inventory is $100,000 and sampling error is $2,000. What is the total estimated misstatement for inventory account?arrow_forwardThe accounting department of the client reports that the balance of Accounts Receivable is $210,000. Using classical variable sampling, the auditor computes an estimated total population value of $216,500 and computed a 95% achieved allowance for sampling risk of +- $8,500. The auditor should conclude that the accounts receivable balance is fairly stated. on Select one: O a. False Ob. True Iarrow_forwardUpper Limit on Misstatements Calculations: Monetary Unit Sampling. Assume that Parker Fran has calculated a sampling interval for Tide Inc.’s inventory of $10,000 and has conducted an examination of a sample of inventory balances. Fran has identified the following three misstatements: Item No. Recorded Balance Audited Value X-21 $ 3,000 $ 1,200 Z-24 550 440 AA-02 6,000 1,500 Required:Calculate the upper limit on misstatements for the following levels of the risk of incorrect acceptance. In general, what relationship do you observe between the risk of incorrectacceptance and the upper limit on misstatements?a. 5 percent.b. 10 percent.arrow_forward
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