Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 44P
a.
To determine
Explain four areas where CPAs may provide judgement in planning a statistical test of controls.
b.
To determine
Explain the steps to be taken by the auditor in case of unacceptable deviation rate.
c.
To determine
Suggest four sampling techniques for selecting the sample size from the population.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Jerry 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
Jerry 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.
In 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.
Chapter 9 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 9 - Prob. 1RQCh. 9 - Prob. 2RQCh. 9 - Prob. 3RQCh. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 8RQCh. 9 - Prob. 9RQCh. 9 - Prob. 10RQ
Ch. 9 - Prob. 11RQCh. 9 - Prob. 12RQCh. 9 - What is a dual-purpose test?Ch. 9 - Prob. 14RQCh. 9 - Prob. 15RQCh. 9 - Prob. 16RQCh. 9 - What would be the difference between an attributes...Ch. 9 - Prob. 18RQCh. 9 - Prob. 19RQCh. 9 - Prob. 20RQCh. 9 - Prob. 21RQCh. 9 - Prob. 22RQCh. 9 - Prob. 23RQCh. 9 - Prob. 24RQCh. 9 - Prob. 25RQCh. 9 - Prob. 26RQCh. 9 - Prob. 27RQCh. 9 - Prob. 28RQCh. 9 - Prob. 29QRACh. 9 - Prob. 30QRACh. 9 - Prob. 31QRACh. 9 - Prob. 32QRACh. 9 - Prob. 33QRACh. 9 - Prob. 34QRACh. 9 - Prob. 35QRACh. 9 - Prob. 36QRACh. 9 - Prob. 37AOQCh. 9 - Prob. 37BOQCh. 9 - Prob. 37COQCh. 9 - Prob. 37DOQCh. 9 - Prob. 37EOQCh. 9 - Prob. 37FOQCh. 9 - Prob. 37GOQCh. 9 - Prob. 37HOQCh. 9 - Prob. 37IOQCh. 9 - Prob. 37JOQCh. 9 - Prob. 37KOQCh. 9 - Prob. 37LOQCh. 9 - Prob. 38OQCh. 9 - Prob. 39OQCh. 9 - For each term in the first column below, identify...Ch. 9 - Prob. 41OQCh. 9 - Smith, Inc. Rachel Robertson wishes to use...Ch. 9 - Prob. 43OQCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Prob. 46PCh. 9 - Prob. 47PCh. 9 - In the audit of Potomac Mills, the auditors wish...Ch. 9 - Prob. 49PCh. 9 - Prob. 50PCh. 9 - Prob. 51PCh. 9 - Prob. 52ITC
Knowledge Booster
Similar questions
- 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 1.0arrow_forwardIn audit sampling applications, sampling risk isa. A characteristic of statistical sampling applications but not of nonstatistical applications.b. The probability that the audit team will fail to recognize erroneous accounting in the client’sdocumentation.c. The probability that accounting misstatements will arise in transactions and enter theaccounting system.d. The probability that an audit team’s conclusion based on a sample might be differentfrom the conclusion based on an audit of the entire population.arrow_forwardTRUE 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_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_forwardTRUE OR FALSE When sampling is used by an auditor, an element of uncertainty is present in the auditor's conclusion. When evaluating the results of specific items selected for testing, its effects must be projected to the whole population. In performing external confirmations, the management prepares the requests and receives and replies for communication to the auditor. As the use of going concern assumption is always relevant un audit, the auditor shall evaluate whether uncertainty exists as the company's ability to continue as going concern. Adverse key financial ratios and negative operating cash flows are some events that may cast doubt about the going concern of a company. In searching for unrecorded liabilities, the population of audit interest is the schedule of accounts payable at period end. Audit sampling refers to the application of audit procedures to less than 100% of the items in an account balance or class of transactions for the purpose of…arrow_forwardIn performing a test of controls for ABC, Inc., the auditor wants to know whether Sales order are approved before goods are picked, packed and shipped to customers. The CPAs has stipulated a Tolerable Deviation Rate (TDR) of 8 percent with a Risk of Assessing Control Risk too low of 5 percent. The CPA also anticipates a deviation rate of 2%. What type of sampling plan should the auditor use for this test? Attribute sampling Monetary samplingarrow_forward
- For 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_forwardAs auditors move from the planning phase to the fieldwork phase of an audit, they recognize they will not be able to test all transactions in order to offer their opinion on the financial statements. Therefore, various sampling techniques and principles have been developed to assist the auditor in providing adequate coverage and a reliable opinion using samples of transactions. Discuss audit sampling for tests of details of balances and for tests of controls and substantive tests of transactions. How do they differ?arrow_forwardCarson Allister is performing a PPS application in the audit of Bird Company’s accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a sample size of 75 items and a sampling interval of $25,000. After examining the sample items, the following misstatements were identified: (Use Exhibit F.A.2.) Item Recorded Balance Audited Value 1 $35,000 $28,000 2 10,000 8,000 3 6,000 3,000 Required: Calculate the upper limit on misstatements for Bird Company’s accounts receivable.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_forwardWhich of the following statements is false? A) Top-stratum items are population items whose book value likely exceed the Sampling Interval and would be all selected for examination and evaluation during the audit. B) Because the auditor knows the full amount of errors in the top stratum (since all items are evaluated), no estimate of errors or projection to the population for the errors in the top stratum is required. C) The auditor's evaluation of the most likely misstatements in the sample reflects the sum of the misstatements from the top-stratum and the projected misstatement derived from the each lower-stratum items D) None of the abovearrow_forwardSam Ple, auditor, has decided to rely on an audit client’s debtors. Sam Ple plans to use sampling to obtain substantive evidence concerning the reasonableness of the client’s debtors/accounts receivable balances.Required:Identify and analyse the steps that Sam Ple should include in the outline of the sampling plan providing examples and illustrationsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning