Chapter 9 - Chapter 09 - Audit Sampling: An Application to...

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Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances 9-1 CHAPTER 9 AUDIT SAMPLING: AN APPLICATION TO SUBSTANTIVE TESTS OF ACCOUNT BALANCES Answers to Multiple-Choice Questions 9-11 d 9-16 b 9-12 d 9-17 a 9-13 b 9-18 a 9-14 a 9-19 c 9-15 c 9-20 c Solutions to Problems 9-21 a. The advantages of MUS over classical variables sampling are as follows: MUS sampling is generally easier to use than is classical variables sampling. The calculation of sample size in a MUS sample is not based on an estimate of the standard deviation in the population. MUS sampling in conjunction with probability-proportional-to-size selection results in a stratified sample. Individually significant items are automatically identified. If no misstatements are expected, MUS will usually result in a smaller sample size than classical variables sampling. b. Using Table 8-5 in the text with a desired confidence level = 95%; tolerable misstatement = 5% ($15,000 ÷ $300,000); and expected misstatement = 2% ($6,000 ÷ $300,000); the sample size is equal to 181 items. The sampling interval is $1,657 ($300,000 ÷ 181). Using ACL with a desired confidence level = 95%; population = $300,000; tolerable misstatement = $15,000; and expected misstatement = $6,000; the sample size is equal to 161 items. The sampling interval is $1,853.93. c. The total projected misstatement for the three misstatements identified is calculated by first computing the tainting factor as follows: Misstatement Number Book Value Audit Value Tainting Factor 1 $400 $320 .20 2 500 0 1.00 Not applicable, since book value
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Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances 9-2 3 3,000 2,500 exceeds sampling interval. The upper misstatement limit is calculated as follows: Misstatement Number Tainting Factor Sampling Interval Projected Misstatement (column 2 x 3) 95% Misstatement Factor or Increment (from Table 9-3) Upper Misstatement Limit (column 2 x 3 x 5) Basic Precision 1.0 $1,657 NA 3.0 $4,971 2 1.0 1,657 1,657 1.7 (4.7-3.0) 2,817 1 .20 1,657 331 1.5 (6.2-4.7) 497 Add misstatements detected in logical units greater than the sampling interval: Misstatement 3 NA 1,657 500 NA 500 Upper Misstatement Limit $8,785 NA—Not Applicable Since the UML ($8,785) is less than the TM ($15,000), the evidence supports the fair presentation of the account balance. Using ACL and the ACL sampling interval calculated by ACL in part b, the Upper Error Limit (UML) is $9,881.10 and the Most Likely Error is $2,724.72. Since the UML ($9,881.10) is less than the TM ($15,000), the evidence supports the fair presentation of the account balance. The ACL output follows: Command: EVALUATE MONETARY CONFIDENCE 95 ERRORLIMIT 400, 80,500, 500,3000, 500 INTERVAL 1853.93 TO SCREEN Confidence: 95, Interval: 1854 Item Error Most Likely Error Upper Error Limit Basic Precision 5562.00 500.00 500.00 1853.93 3244.38 400.00 80.00 370.79 574.72 3000.00 500.00 500.00 500.00 Totals
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This note was uploaded on 10/16/2011 for the course AIM 6334 taught by Professor Chrits during the Spring '11 term at University of Texas at Austin.

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Chapter 9 - Chapter 09 - Audit Sampling: An Application to...

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