A scrap metal dealer claims that tye mean of its cash sales in no more than $80, although an Internal revenue service agent believes that the dealer is being dishonest. Observing a sample of 20 cash customers the agent finds the mean cash sales to be $91 with a standard deviation of $21. Assuming the popUlation is distributed Approximately normally, and using the 0.05 level of significance , will the agents suspicion be confirmed

A scrap metal dealer claims that tye mean of its cash sales in no more than $80, although an Internal revenue service agent believes that the dealer is being dishonest. Observing a sample of 20 cash customers the agent finds the mean cash sales to be $91 with a standard deviation of $21. Assuming the popUlation is distributed Approximately normally, and using the 0.05 level of significance , will the agents suspicion be confirmed

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter8: Specialized Audit Tools: Attributes Sampling, Monetary Unit Sampling, And Data Analytics Tools

Section: Chapter Questions

Problem 17RQSC

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Which of the following would not be considered an analytical procedure? a. Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics. b. Developing the expected current year sales based on the sales trend of the prior five years. O c. Computing accounts receivable turnover by dividing credit sales by the average net receivables. d. Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked.
Comprehensive Problem: Monetary Unit Sampling. Clint Walker was examiningthe accounts receivable of Country Music Inc. Its accounts receivable were recorded at$1,500,000. Based on past audits, Walker established tolerable misstatement at 10 percent ofthe recorded account balance and anticipated a very small level of misstatement in CountryMusic’s accounts receivable ($50,000). In his previous assessments of audit risk, risk ofmaterial misstatement, and analytical procedures risk, Walker had established a necessaryrisk of incorrect acceptance of 10 percent.Required:a. Calculate the sampling interval and sample size that Walker would use in the audit ofCountry Music.b. Reperform the calculations in part (a) if Walker had established a risk of incorrect acceptance of (1) 5 percent and (2) 20 percent. Based on your calculations, describe the relationship between the necessary level of the risk of incorrect acceptance and the samplesize and sampling interval.c. [Note: Part (c) is unrelated…
The auditor of Tent manufacturing Ltd has decided to use systematic selection of cash payments when testing the control that cheque payments are supported by a supplier’s invoice, a purchase requisition and a goods received note. Each cheque comprises a sampling unit. There are 4000 cheques drawn (numbered 1–4000) and the total amount of cash payments is $12 million. The sample size is 25 and the random start is 205. Given this information, the second item selected will be item no:Select one:a. Cheque number 2415.b. Cheque number 160.c. Cheque number 365.d. Some other item number.
Indicate whether you agree or disagree with the following statements and explain your reasoning. Joseph Cabana was explaining to Carl Metz how sampling risk works for the audit team: "Non- sampling risk is the risk that as auditors we will arrive at a conclusion that has nothing to do with sampling issues." Kendal Clarke was auditing the miscellaneous expense account. She decided to chose every transaction that had a value of $20,000 or higher. Kendal is performing a statistical sampling technique known as systematic selection. Melissa Wilson had concluded that control risk was low for her audit client. Therefore, she decided that the most appropriate audit strategy was a combined audit strategy.
An auditor is using PPS Sampling to determine the projected error in Accounts Receivable. Two errors were discovered: Error #1: Book Value of $400, Audit Value of $100 Error #2: Book Value of $6,000, Audit Value of $2,000 The Sampling Interval was $2,000 Total Projected Error is: a. $2,100 b. $2,833 c. $4,300 d. $2,300 e. $5,500
The accounting department of the client reports that the balance of Accounts Receivable is $210,000. Using classical variable sampling, the auditor computes an estimated total population value of $216,500 and computed a 95% achieved allowance for sampling risk of +- $8,500. The auditor should conclude that the accounts receivable balance is fairly stated. on Select one: O a. False Ob. True I
In 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.
Sample Size Relationships: Monetary Unit Sampling. Noel Frehley is examining theaccounts receivable of Kiss Company and is considering the use of MUS. Kiss’s accountsreceivable are recorded at $400,000. Based on the necessary level of risk, Frehley has established a risk of incorrect acceptance of 5 percent. In addition, based on previous audits,Frehley estimates misstatements of $10,000. Finally, based on the overall level of performance materiality, Frehley has established tolerable misstatement at $20,000.Required:a. Determine the necessary sample size for Frehley’s examination of Kiss Company’saccounts receivable.b. Assume that Frehley was interested in trying to reduce the necessary sample size. Whatare some options available in this regard?c. Based on a discussion with the senior manager, Frehley knows that increasing the level ofthe risk of incorrect acceptance will reduce sample size. For the same level of expectedmisstatement, tolerable misstatement, and population size,…
Comprehensive Problem: Monetary Unit Sampling. Dylan Mays is auditing the accountsreceivable of Channel Company. Channel’s accounts receivable were recorded at $2,000,000and comprised more than 1,500 customer accounts. However, Channel’s ten largest customers’ balances comprised a high percentage of the recorded accounts receivable (over$500,000, or 25 percent). As a result, Mays is considering the use of MUS.Based on prior audits and other judgments, Mays has established the following parameters: Risk of incorrect acceptance 5% Tolerable misstatement $120,000 Expected misstatement $ 24,000 Required:a. Briefly identify what factors Mays should consider in determining sample size and howthese factors would be assessed.b. Calculate the necessary sample size and sampling interval used by Mays in the audit ofChannel Company.c. Given the information in part (b), describe how Mays would select the sample fromChannel’s computerized accounts receivable ledger.d. [Note: Part (d) is…
Which of the following courses of action would an audit team most likelyfollow in planning a sample of cash disbursements if the audit team is aware of several unusually large cash disbursements?a. Increase the sample size to reduce the effect of the unusually large disbursements.b. Continue to draw new samples until all unusually large disbursements appear in the sample.c. Set the tolerable deviation rate at a lower level than originally planned.d. Stratify the cash disbursements population so that the unusually large disbursements are selected.
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
Sample Size Determination: Monetary Unit Sampling. The recorded accounts receivable balance for Warner Company was $500,000.Required:For each of the following independent sets of conditions, determine the appropriate samplesize for the examination of Warner’s accounts receivable in MUS. Based on the differencesin your calculations, identify the general relationship between different factors and samplesize. (RIA = risk of incorrect acceptance, TM = tolerable misstatement, EM = expectedmisstatement).a. RIA = 5%, TM = $50,000, EM = $10,000.b. RIA = 5%, TM = $50,000, EM = $25,000.c. RIA = 10%, TM = $50,000, EM = $10,000.d. RIA = 10%, TM = $50,000, EM = $25,000.