Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
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Question
Chapter 8, Problem 31CYBK
To determine
Introduction:A Tolerable misstatement is the amount which exist in the financial statements but the impact of it is so small that it will not affect the whole meaning of the entire Accounting results.
To choose: The minimum size of sample, which an auditor should see.
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Students have asked these similar questions
If the UML or Projected Misstatement in a sampling is $8,000, while the tolerable misstatement is $9,000, what would an auditor likely conclude?
A) Since the UML or Projected Misstatement is less than the tolerable misstatement, the account is not materially misstated.
B) Since the UML or Projected Misstatement is less than the tolerable misstatement, the account is misstated.
C) The analysis has been improperly performed since the UML or Projected Misstatement is unequal to the tolerable misstatement
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. 195
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?
Chapter 8 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
Ch. 8 - Prob. 1CYBKCh. 8 - Prob. 2CYBKCh. 8 - Prob. 3CYBKCh. 8 - Prob. 4CYBKCh. 8 - Prob. 5CYBKCh. 8 - Prob. 6CYBKCh. 8 - Prob. 7CYBKCh. 8 - Prob. 8CYBKCh. 8 - Prob. 9CYBKCh. 8 - Prob. 10CYBK
Ch. 8 - Prob. 11CYBKCh. 8 - Prob. 12CYBKCh. 8 - Prob. 13CYBKCh. 8 - Prob. 14CYBKCh. 8 - Prob. 15CYBKCh. 8 - Prob. 16CYBKCh. 8 - Prob. 17CYBKCh. 8 - Prob. 18CYBKCh. 8 - Refer to Exhibit 8.6. Assume a 5% risk of...Ch. 8 - Prob. 21CYBKCh. 8 - Prob. 22CYBKCh. 8 - Prob. 23CYBKCh. 8 - Prob. 24CYBKCh. 8 - Prob. 25CYBKCh. 8 - Prob. 26CYBKCh. 8 - Prob. 27CYBKCh. 8 - Prob. 28CYBKCh. 8 - Prob. 29CYBKCh. 8 - Prob. 30CYBKCh. 8 - Prob. 31CYBKCh. 8 - Prob. 32CYBKCh. 8 - Prob. 33CYBKCh. 8 - Prob. 34CYBKCh. 8 - Prob. 35CYBKCh. 8 - Prob. 36CYBKCh. 8 - Prob. 37CYBKCh. 8 - Prob. 38CYBKCh. 8 - Prob. 39CYBKCh. 8 - Prob. 1RQSCCh. 8 - Prob. 3RQSCCh. 8 - Prob. 4RQSCCh. 8 - Prob. 5RQSCCh. 8 - Prob. 6RQSCCh. 8 - Prob. 7RQSCCh. 8 - Prob. 8RQSCCh. 8 - Prob. 9RQSCCh. 8 - Prob. 10RQSCCh. 8 - Prob. 11RQSCCh. 8 - Prob. 12RQSCCh. 8 - Prob. 13RQSCCh. 8 - Prob. 14RQSCCh. 8 - Prob. 15RQSCCh. 8 - Prob. 16RQSCCh. 8 - Prob. 17RQSCCh. 8 - Prob. 18RQSCCh. 8 - Prob. 19RQSCCh. 8 - What is stratification? Distinguish between...Ch. 8 - Prob. 21RQSCCh. 8 - Prob. 22RQSCCh. 8 - Prob. 23RQSCCh. 8 - Prob. 24RQSCCh. 8 - Prob. 25RQSCCh. 8 - Prob. 26RQSCCh. 8 - Prob. 27RQSCCh. 8 - Prob. 28RQSCCh. 8 - Prob. 29RQSCCh. 8 - Prob. 30RQSCCh. 8 - Prob. 31RQSCCh. 8 - Prob. 32RQSCCh. 8 - Prob. 33RQSCCh. 8 - Prob. 36RQSCCh. 8 - Prob. 37RQSC
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Similar questions
- Refer to Exhibit 8.6. Assume a 5% risk of overreliance,a tolerable deviation rate of 8%, a sample size of 100, and that the number of deviations is five. What is the upper limit of the possible deviation rate, and what does it mean? a. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 10.3%. b. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 5%. c. 5%. The auditor is 92% confident that the real error rate in the population is no greater than 10.3%. d. 5%. The auditor is 92% confident that the real error rate in the population is no greater than 5%.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_forwardWhich of the following statements is not true if the precision interval for a sampling risk of 10 percent ranges from 60 to 70?a. A 10 percent probability exists that the true population value is less than 60 or more than 70.b. A 90 percent probability exists that the true population value is less than 60 or more than 70.c. The reliability is 90 percent.d. The precision is 5.arrow_forward
- Determine the Sample size in the AHMED Company according to the following data: Book value of population tested = 500000 $ The Reliability factor for the specified risk of incorrect acceptance= 3 Tolerable misstatement = 40000 $ Anticipated misstatement= 4000 $ Expansion factor for anticipated misstatement = 1.5arrow_forwardCalculate total projected mistreatment if the following three mistreatments were discovered in a PPS sample when the sampling interval is $1,000. Recorded Amount Audit Amount Sampling interval Total Projected Mistreatment 1st mistreatment $400 $320 $1,000 _________________ 2nd mistreatment 500 0 $1,000 _________________ 3rd mistreatment 3,000 2,500 $1,000 _________________arrow_forwardAssume 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.arrow_forward
- Sample Size Determination. For each of the following independent cases, use AICPA sample size tables to identify the missing value(s). Control 1 2 3 4 Risk of overreliance 5.0% 5.0% 10.0% (d) Expected population deviation rate 1.25% 2.5% (c) 1.25% Tolerable rate of deviation 7.0% (b) 6.0% 6.0% Sample size (a) 68 153 78arrow_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_forwardJamie Plane is testing the effectiveness of an important controlfor Blackheart Inc. Plane is placing a high level of reliance on this control and has assesseda relatively low risk of overreliance (5 percent) and tolerable rate of deviation (6 percent).Based on the acceptable risk of overreliance, expected population deviation rate, and tolerable rate of deviation, Plane determined a sample size of 60 items. The tests of controlsrevealed three deviations.Required Ignoring the effects on sample size, how would Plane’s decision to accept a higher riskof overreliance (10 percent) affect the conclusions made with respect to the operatingeffectiveness of the control?arrow_forward
- Jamie Plane is testing the effectiveness of an important controlfor Blackheart Inc. Plane is placing a high level of reliance on this control and has assesseda relatively low risk of overreliance (5 percent) and tolerable rate of deviation (6 percent).Based on the acceptable risk of overreliance, expected population deviation rate, and tolerable rate of deviation, Plane determined a sample size of 60 items. The tests of controlsrevealed three deviations.Required:A. What would Plane’s conclusion be with respect to the operating effectiveness of the control? What options are available at this time?B. Ignoring the effects on sample size, how would Plane’s decision to accept a higher riskof overreliance (10 percent) affect the conclusions made with respect to the operatingeffectiveness of the control?arrow_forwardWhich of the following would not result in the audit team’s selecting a larger sample of controlsfor examination?a. A reduction in the risk of overreliance from 10 percent to 5 percent.b. An increase in the tolerable rate of deviation from 3 percent to 6 percent.c. An increase in the expected population deviation rate from 2 percent to 4 percent.d. All of the above would result in a larger sample of controlsarrow_forward70 When an auditor does a sampling for attributes, which of the following would decrease sample size? Risk of assessing control risk too low Tolerable rate of Deviation Expected population deviation rate A. Increase Decrease Increase B. Decrease Increase Decrease C. Increase Increase Decrease D. Increase Increase Increase Group of answer choices Choice C Choice B Choice A Choice Darrow_forward
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