Question 1

An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population of 1,000 items that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that
A) There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.
B) There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements.
C) The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.
D) The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.
Net overstatement is $3,500. Using difference projection, the mean misstatement per sampling unit is $70 ($3,500/50) and the projected misstatement is $70,000 ($70 x 1,000). The projected misstatement is larger than the tolerable (even before considering sampling risk).

Accepted Answer

The total projected misstatement of $70,000 exceeds the tolerable misstatement of $60,000, indicating that there is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement.

Question 2

An auditor has taken a large sample from an audit population that is skewed in the sense that it contains a large number of small dollar balances. The auditor can conclude
A) The sampling distribution is not normal; therefore MUS sampling will more accurately define the nature of the population.
B) The sampling distribution is normal; therefore the confidence coefficient value can be used to evaluate the sample results.
C) The sampling distribution is not normal; thus attribute sampling is the only alternative statistical tool that can be appropriately used.
D) None of the other answers is correct.

Accepted Answer

The Central Limit Theorem states that with a large enough sample size, the sampling distribution of the sample mean will be approximately normal, regardless of the population distribution.

Question 3

When auditing accounts payable using classical variables sampling, Sue finds evidence indicating that the account may be materially misstated. What are Sue's options?

Accepted Answer

The answer of When auditing accounts payable using classical variables...

Question 4

Describe two advantages and two disadvantages of monetary-unit sampling (MUS).

Accepted Answer

The answer of Describe two advantages and two disadvantages of...

Question 5

Summarize the concept behind monetary-unit sampling (MUS). How does MUS use attribute-sampling theory?

Accepted Answer

The answer of Summarize the concept behind monetary-unit sampling (MUS)....

Question 6

An auditor is performing substantive procedures of pricing and extension of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate?
A) Unstratified mean-per-unit.
B) Monetary-unit sampling.
C) Stop or go.
D) Difference projection.

Accepted Answer

The answer of An auditor is performing substantive procedures of...

Question 7

In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected misstatement of this sample was
A) $3,000.
B) $4,000.
C) $6,000.
D) $8,000.
The misstatement amount is 60% with a taint of .60 of the book value of the selected item. The taint is applied to the sampling interval to determine the projected misstatement for the account. The projected misstatement would be $6,000 ($10,000 x .60).

Accepted Answer

The projected misstatement can be calculated by multiplying the sampling interval by the taint, which is 60% of the book value of the selected item. Therefore, the projected misstatement is $10,000 x 0.60 = $6,000.

Question 8

You are auditing accounts receivable for a small company and have found the following results:

Accepted Answer

The answer of You are auditing accounts receivable for a...

Question 9

Whenever a statistical method is used, a decision rule determines whether the population is acceptable. The decision rule for monetary-unit sampling is "Accept the conclusion that the book value is not misstated by a material amount if ________________________."

Accepted Answer

The answer of Whenever a statistical method is used, a...

Question 10

Match each factor of sample size to (1) its relationship to sample size (A-Direct or B-Inverse) and (2) the appropriate effect on the sample size if the factor increases (C-Increase or D-Decrease).
1. Tolerable misstatement
2. Population size
3. Desired confidence level
4. Expected misstatement

Accepted Answer

The answer of Match each factor of sample size to...

Question 11

What is one advantage and one disadvantage of classical variables sampling?

Accepted Answer

The answer of What is one advantage and one disadvantage...

Question 12

In nonstatistical sampling, describe the two methods auditors use to project sample results to the population. How does an auditor determine which method to use?

Accepted Answer

The answer of In nonstatistical sampling, describe the two methods...

Question 13

Matching

Accepted Answer

The answer of Matching
 ...

Question 14

You have been placed in charge of determining the sample size for an audit of accounts receivable. Your superior would like a confidence level of 99%. How does this affect your determination of sample size? What can you infer about the level of risk of incorrect acceptance that your superior is willing to accept?

Accepted Answer

The answer of You have been placed in charge of...

Quiz 9: Audit Sampling: An Application to Substantive Tests of Account Balances

An auditor has taken a large sample from an audit population that is skewed in the sense that it contains a large number of small dollar balances. The auditor can conclude