The use of the ratio projection is most effective when:
A)the dollar amount of the misstatement is expected to relate to the dollar amount of items tested.
B)a small number of differences exist in the population.
C)estimating populations whose records consist of quantities but not book values.
D)large understatement differences exist in the population.

Question

Quizplus · Accepted Answer

The ratio projection is most effective when the dollar amount of the misstatement is expected to relate to the dollar amount of items tested. This means that if the sample items tested are representative of the entire population and show a consistent pattern of misstatement, then it can be assumed that the total misstatement in the population will be proportional to the dollar amount of items tested. Therefore, the ratio projection can be used to estimate the total misstatement in the population.

Option B is incorrect because a small number of differences in the population may not provide a sufficient sample size for the ratio projection. Option C is also incorrect because if book values are not available, then it may be difficult to compute ratios. Option D is incorrect because the ratio projection may not be effective when only large understatement differences exist in the population, as it assumes proportional misstatements.

The Use of the Ratio Projection Is Most Effective When