Question 1

A client's inventory is recorded at $600,000 and is comprised of 1,000 items.The auditors examined a sample of items with a recorded balance of $100,000 and determined an audited value of $90,000.What is the estimated audited value for inventory?

Accepted Answer

The auditors found a discrepancy of $10,000 ($100,000 - $90,000) in the sample of items, so it's reasonable to assume that the entire inventory may have a similar percentage of discrepancy. Therefore, the estimated audited value for inventory would be $540,000 ($600,000 - ($10,000/$100,000) * $600,000).

Question 2

Which of the following is not true with respect to the use of monetary unit sampling (MUS)?

Accepted Answer

The answer of Which of the following is not true...

Question 3

Auditors are evaluating an account with a recorded balance of $500,000 using mean-per-unit estimation.This account is comprised of 1,000 individual components.The auditors sampled 100 items and determined a total audited value of $52,500.Using a risk of incorrect acceptance of 10 percent,the auditors determined a precision of $40,000.If the tolerable misstatement is $50,000,which of the following is not true?

Accepted Answer

The answer of Auditors are evaluating an account with a...

Question 4

Law,CPA is using nonstatistical sampling in his examination of Jye Company's accounts receivable.The recorded balance of Jye's accounts receivable was $750,000.Law selected a sample of customer accounts for examination,which were recorded at $50,000.Based on the responses received from accounts receivable confirmations,Law determined an audited value of $45,000 for the accounts receivable. If tolerable misstatement is $60,000,which of the following statements is not true?

Accepted Answer

The estimated account balance should be calculated by projecting the sample misstatement to the entire population, not simply adding it to the recorded balance.

Question 5

Auditors are evaluating an account with a recorded balance of $600,000 using classical variables sampling.Based on an allowable risk of incorrect acceptance of 5 percent,the auditors have determined the following: -Estimated account balance = $680,000
-Precision = $20,000
-Tolerable misstatement = $50,000
Which of the following best describes the auditors' decision and rationale for that decision?

Accepted Answer

The auditors would conclude that the account balance is not fairly stated since the difference between the lower bound of the precision interval and recorded balance exceeds the tolerable misstatement. The precision interval is determined by taking the estimated account balance (plus or minus the precision amount), which in this case is $680,000 ± $20,000 or $660,000 to $700,000. Since the recorded balance of $600,000 falls outside of this range, it is likely that the account balance is misstated. Furthermore, the difference between the lower bound of the precision interval ($660,000) and recorded balance ($600,000) equals $60,000, which exceeds the tolerable misstatement of $50,000 set by the auditors. Therefore, it is likely that the account balance is not fairly stated.

Question 6

As the auditors' assessments of control risk and analytical procedures risk decrease,which of the following statements is true?

Accepted Answer

The answer of As the auditors' assessments of control risk...

Question 7

A client's inventory is recorded at $300,000 and is comprised of 1,000 items.If auditors examined a sample of 200 items and found a total misstatement of $20,000 (overstatement),what is the estimated audited value for inventory?

Accepted Answer

To estimate the audited value of inventory, we need to use the ratio of the misstatement found in the sample to the total number of items in the inventory.

Ratio of misstatement in the sample = Misstatement in the sample / Sample size = $20,000 / 200 = $100 per item

Estimated misstatement in the total inventory = Ratio of misstatement in sample × Total number of items = $100 × 1,000 = $100,000

Therefore, the estimated audited value for inventory would be the recorded value of $300,000 minus the estimated misstatement of $100,000, which equals $200,000 (Option C).

Question 8

Which of the following is not a correct relationship between a factor and sample size in a monetary unit sampling application?

Accepted Answer

The answer of Which of the following is not a...

Question 9

Which of the following components of the upper limit on misstatements is based on the possibility that the sampling interval contains a greater degree of misstatement than the item examined by the auditor?

Accepted Answer

Incremental allowance for sampling risk accounts for the possibility that the misstatement in the sampling interval may be greater than the misstatement found in the item examined by the auditor. Basic allowance for sampling risk accounts for the inherent risk in sampling, projected misstatement is the estimated misstatement in the population based on the misstatement found in the sample, and risk of incorrect acceptance is the risk that the auditor accepts the population as not materially misstated when it actually is.

Question 10

Which of the following is considered to be an advantage of monetary unit sampling compared to classical variables sampling? $$\begin{array} { c c c } 
& \text { Selection of larger } & \text { Abity to identijy } \
\text {  } & \text { components } & \text { understatements } \
\text { A. } & \text { Yes } & \text { No } \
\text { B. } & \text { No } & \text { No } \
\text { C. } & \text { No } & \text { Yes } \
\text { D. } & \text { Yes } & \text { Yes } \
\end{array}$$

Accepted Answer

The answer of Which of the following is considered to...

Question 11

SCA is auditing a client's accounts receivable balance recorded at $10 million using MUS.The following parameters have been established for this account: -Tolerable misstatement = $500,000
-Expected misstatement = $100,000
-Risk of incorrect acceptance = 10 percent
Which of the following statements would not be true with respect to the sample size in this situation?

Accepted Answer

According to MUS, the sample size is determined by the formula: Sample Size = Tolerable misstatement / Expected misstatement. Therefore, reducing the tolerable misstatement from $500,000 to $200,000 will increase the sample size. The correct sample size is determined by the formula: Correct Sample Size = Recorded Amount / Sample Size Estimate. Therefore, none of the other options are correct.

Question 12

Which of the following selection methods selects individual dollars within an account balance or class of transactions for examination?

Accepted Answer

Monetary unit sampling involves selecting individual monetary units (such as dollars) within an account balance or class of transactions for examination, making it the appropriate choice for this scenario. Attribute sampling involves testing specific characteristics or attributes of a population, classical variables sampling involves testing numerical values of a population, and nonstatistical variables sampling involves using professional judgement to select items for examination.

Question 13

Which of the following components of the upper limit on misstatements is affected by misstatements detected during the audit examination? $$\begin{array} { c c c } 
& \text { Basic Allowance for } & \text { Incremertal Allowano } \
\text { } & \text { Sampling Risk } & \text { for Sampling Fisk } \
\text { A. } & \text { Yes } & \text { No } \
\text { B. } & \text { No } & \text { No } \
\text { C. } & \text { No } & \text { Yes } \
\text { D. } &\text { Yes } & \text { Yes }
\end{array}$$

Accepted Answer

The answer of Which of the following components of the...

Question 14

Which of the following represents a major difference in the use of monetary unit sampling (MUS)and classical variables sampling?

Accepted Answer

The major difference between MUS and classical variables sampling is that MUS defines the sampling unit as a dollar of an account balance while classical variables sampling defines the sampling unit as a component of an account balance.

Question 15

MES is auditing a client's accounts receivable balance recorded at $2 million using MUS.The following parameters have been established for this account: -Tolerable misstatement = $200,000
-Expected misstatement = $100,000
-Risk of incorrect acceptance = 5 percent
Which of the following statements would not be true with respect to the sample size in this situation?

Accepted Answer

The size of the population can affect the sample size in MUS. As the population size increases, the sample size also increases to achieve the desired level of assurance. However, in this particular scenario, we do not have information about the population size. Therefore, we cannot make any conclusions about how the population size would affect the sample size. Hence, option D is not a true statement.

Question 16

Auditors are evaluating an account with a recorded balance of $700,000 using classical variables sampling.Based on an allowable risk of incorrect acceptance of 10 percent,the auditors have determined the following: -Estimated account balance = $640,000
-Precision = $20,000
-Tolerable misstatement = $50,000
Which of the following best describes the auditors' decision and rationale for that decision?

Accepted Answer

The difference between the upper bound of the precision interval and recorded balance is less than the tolerable misstatement, so the auditors would accept the account balance as fairly stated.

Question 17

Zimmerman is auditing a client's accounts balance recorded at $1 million using monetary unit sampling.After assessing the appropriate parameters,Zimmerman determined an appropriate sample size of 100 items.The following two misstatements were identified as a result of the substantive tests: $$\begin{array} { c c } 
\text { Recorded Balarice } & \text { Audited Value } \
\$ 20,000 & \$ 16,000 \
\$ 5,000 & \$ 2,000
\end{array}$$ Assume that Zimmerman's parameters included a tolerable misstatement of $60,000 and a risk of incorrect acceptance of 5 percent.(Confidence factors for a 5 percent risk of incorrect acceptance are shown below): $$\begin{array} { c c } 
\text { Gverstatemert } & \text { Factor } \
\text { ETcrs } & \
0 & 3.00 \
1 & 4.75 \
2 & 6.30
\end{array}$$ Which of the following is not true with respect to the above?

Accepted Answer

To determine whether the account balance is fairly stated, Zimmerman needs to compare the projected misstatement to the tolerable misstatement, including the basic allowance for sampling risk.

First, we need to calculate the basic allowance for sampling risk (BASR):

BASR = factor x tolerable misstatement
BASR = 4.75 x 60,000
BASR = $285,000

Next, we can calculate the upper limit on misstatements (UL):

UL = audited value + (factor x sampling error)
UL = 1,000,000 + (4.75 x SQRT[(1 - 100/1,000) / 100/999 x 1,000,000])
UL = $1,046,750

Now we can calculate the projected misstatement (PM):

PM = misstatement detected / sample percentage x 100
PM = [(16,000 - 20,000) + (2,000 - 5,000)] / 100 x 1,000,000
PM = -$7,000

Note that the PM is negative because the audited values are lower than the recorded balances.

Finally, we need to determine whether UL is greater than or equal to the sum of the PM and BASR:

UL >= PM + BASR
1,046,750 >= -7,000 + 285,000

Therefore, the account balance is fairly stated and Zimmerman should not issue a qualified opinion.

Option A is not correct because the actual misstatement detected by Zimmerman is the sum of the misstatements identified in the sample: $16,000 - $20,000 + $2,000 - $5,000 = -$7,000

Option B is not correct because the projected misstatement is the sum of the misstatements in the sample adjusted for the size of the population: -7,000 / 0.01 = -$700,000

Option C is correct because the BASR is $285,000.

Option D is not correct because the UL is greater than the sum of the PM and BASR, indicating that the account balance is fairly stated.

Question 18

Which of the following statements is true regarding performance materiality in a monetary unit sampling application?

Accepted Answer

The answer of Which of the following statements is true...

Question 19

Allister is auditing a client's accounts balance recorded at $500,000 using monetary unit sampling and determined a sample size of 100 items.The following two misstatements were identified as a result of the substantive tests: 
$$\begin{array} { c c } 
\text { Recorded Balaree } & \text { Audited Arrount } \
\$ 4,000 & \$ 1,000 \
\$ 2,000 & \$ 1,500 \

\end{array}$$ Confidence factors for a 5 percent risk of incorrect acceptance are shown below: $$\begin{array} { c c } 
\text { Gverstatemert } & \text { Factor } \
\text { ETcrs } & \
0 & 3.00 \
1 & 4.75 \
2 & 6.30
\end{array}$$ What is the incremental allowance for sampling risk?

Accepted Answer

The incremental allowance for sampling risk is calculated by multiplying the confidence factor for the number of errors by the average misstatement. Here, there are 2 errors, so the factor is 6.30. The average misstatement is ($3,000 total misstatement / 2 errors) = $1,500. Thus, the incremental allowance is 6.30 * $1,500 = $9,450. However, the closest option is $8,500, which is likely an approximation or rounding in the context of the problem.

Question 20

Holding other factors constant in a classical variables sampling application,an increase in which of these factors will cause sample size to increase?

Accepted Answer

The answer of Holding other factors constant in a classical...

Quiz 19: Variables Sampling