Tolerable misstatement is quizlet. Minimize the failure to detect errors and fraud.
Tolerable misstatement is quizlet Study with Quizlet and memorize flashcards containing terms like Audit sampling implies the gathering of evidence to use as a basis for making valid inferences about the characteristics of the population as a whole without examining every transaction. Study with Quizlet and memorize flashcards containing terms like Tolerable misstatement is used to select the sample, In evaluating results for tests of details, auditors must evaluate exceptions identifies, In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is inverse and more. tolerable misstatement is 900 D) every 900th item will be selected and more. False, When testing controls, the use of haphazard selection of a sample allows for random, Study with Quizlet and memorize flashcards containing terms like Which of the following statements is correct? a. , Risk assessment B) expected amount of misstatement and the measure of tolerable misstatement In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if: A) monetary-unit sampling (MUS) is used. A material weakness involves an amount that could result in a misstatement that is not tolerable. Study with Quizlet and memorize flashcards containing terms like When selecting a sample size for substantive tests of balances which factor, other factors being equal, would result in a larger sample? A) A decrease in the tolerable misstatement B) Small expected misstatements C) An increase in the tolerable misstatement D) An increase in the acceptable risk of incorrect Study with Quizlet and memorize flashcards containing terms like The risk of incorrect acceptance and the risk of overreliance (Type II Errors) relate to the: A) preliminary estimates of materiality levels. Tolerable misstatement; Upper misstatement limit. 2, the nonstatistical sample size should be _____ Study with Quizlet and memorize flashcards containing terms like Determining the tolerable misstatement is a matter of the auditor's professional judgment. A decrease in the amount of expected misstatement is the population to be tested b. All of the above. Bob Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of $2,100. When defining the population and sampling unit, sometimes an auditor must look for a reciprocal population. Study with Quizlet and memorize flashcards containing terms like DEFINE: Overall Materiality, Public companies, and profit-oriented nonpublic companies with stable earnings, normally use 3-5 percent of ____________ in determining materiality. Jose, CPA, is completing audit procedures for accounts receivable testing for the December 31, Year 3, audit of MSM Co. . Confidence level. In comparison, the material weakness encompasses the financial statements as a whole. Tolerable misstatement is the amount of Study with Quizlet and memorize flashcards containing terms like Tolerable misstatement is used to select the sample, In evaluating results for tests of details, auditors must evaluate exceptions identifies, In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is inverse and more. Tolerable misstatement is directly related to materiality. Study with Quizlet and memorize flashcards containing terms like if the tolerable misstatement is set at a low dollar amount, it requires more evidence than a high dollar amount, serves as a contract outlining the responsibilities of both parties to help prevent misunderstandings, what is auditing ? and more. Duffney has determined that the account's tolerable misstatement is $800,000. 5% of population is selected (1/20) Net overstatement of $3,500 ($3,700-$200) Apply the $3,500 to the entire population = $70,000 $70,000 > $60,000 tolerable = unacceptable Neither the expected amount of misstatement nor the measure of tolerable misstatement. It shapes the planning phase by identifying areas of the financial statements that are more likely to contain Question: 6. , Study with Quizlet and memorize flashcards containing terms like Indeterminate Effect on Sample Size, Smaller Sample Size, Larger Sample Size and more. Stratifying the population when appropriate. Average book value of sample items = $795 Allowance for sampling risk = $220,000 Projected misstatement = $100,000 overstatement The estimated total audited value of the population An auditor is preparing to sample an entity's customer receivables for overstatement. , An audit testing strategy that can be used to allow evidence obtained in prior audit periods to support a conclusion about IT application controls in the current audit period. Study with Quizlet and memorize flashcards containing terms like When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. It is a rate of deviation set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set is not exceeded by the actual rate of deviation in the population. Tolerable misstatement 3. 120 Which of the following is accurate regarding tolerable misstatement? A. Quizlet for Schools; Language Country. b) An increase in the desired level of assurance that the tolerable misstatement is not exceeded by the actual amount of misstatement in the population. Study with Quizlet and memorize flashcards containing terms like Which of the following procedures is performed BEFORE accepting a prospective client? -Making inquiries of third parties regarding management integrity -Verifying cash balances -Testing of internal controls -Verifying the existence of key fixed assets, Tolerable misstatement is also called performance Study with Quizlet and memorize flashcards containing terms like 5 factors to determine sample size, BV of inventory account balance: $3,000,000 BV value of items sampled: $100,000 Audited value of items sampled: 98,000 Total amount of overstatement observed in audit sample: $2,000 What is the ratio of misstatement in the sample? What is your best estimate of misstatement of Study with Quizlet and memorize flashcards containing terms like Which of the following is an element of sampling risk? Choosing an audit procedure that is inconsistent with the audit objective. monetary The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is: the upper bound. What amount will be compared to tolerable misstatement to If the rate of deviation exceeds the tolerable rate, the auditor will extend their testing and gather further evidence of other controls that may be aimed at reducing the identified risk of material Tolerable misstatement is a benchmark that informs the auditor’s approach during the initial stages of an audit. Expected Misstatement 4. Internal controls are geared toward the achievement of operations, reporting, and compliance objectives. Risk of Material Misstatement C. Answer: An increase in the desired level of assurance that the tolerable misstatement is not exceeded by the actual amount of misstatement in the population. B) conduct Accordingly, the auditor should extrapolate the misstatement results of a sample to all of the items from which the sample was picked. Measure the sufficiency of the evidence Study with Quizlet and memorize flashcards containing terms like If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least likely to a. Reduce the level of audit risk and materiality to a relatively low amount. , Discovery sampling is equivalent to an attributes sampling plan with a specified expected deviation rate of 0 percent. The misstatement is less than 5% of pretax income C. B) An increase in the amount of tolerable misstatement. An increase in the amount of tolerable misstatement. B) population which the auditor has included in the sample. Incremental allowance for sampling risk c. an increase in the expected misstatement from $20,000 to $40,000 d. effectiveness of the audit. Study with Quizlet and memorize flashcards containing terms like Both sampling and nonsampling risks are associated with, In the test of details of balances, the auditor wants to make inferences about the entire population based on a sample. Will-Mart has 3,000 accounts receivable accounts with a total book value of $3,550,000. Study with Quizlet and memorize flashcards containing terms like 1) Both sampling and nonsampling risks are associated with A) Tests of controls. Study with Quizlet and memorize flashcards containing terms like An auditor discovers that an account balance believed to be materially misstated based on an audit sample was not materially misstated based on the total population of the account balance. Duffney has determined that the account's tolerable misstatement is $900,000. Study with Quizlet and memorize flashcards containing terms like In the test of details of balances, the auditor wants to make inferences about the entire population based on a sample. The amount of misstatement that management is willing to tolerate in the financial statements. Tolerable Misstatement 3. Study with Quizlet and memorize flashcards containing terms like Tolerable misstatement is:, Which of the following would an auditor most likely use in determining the auditor's overall materiality?, Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality? and more. She now should A. attribute sampling b. There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. , If tolerable misstatement is $120,000, and the upper limit on the account's possible misstatement is less than $120,000, then the account is considered to be, MUS is Chapter 3 - Tolerable Misstatement Learn with flashcards, games, and more — for free. 7. Allowable risk of tolerable misstatement B. Tolerable misstatement cannot be determined until the sample results are evaluated 3. , Increases in the number of deviations in an attributes sample results in an increase in the achieved upper Study with Quizlet and memorize flashcards containing terms like Allowance for sampling risk, Audit sampling, Classical variables sampling and more. ) Low, Few, Unlikely C. determine tolerable misstatement AKA performance materiality 3. Tolerable misstatement is a measure of reliability of the sample. Study with Quizlet and memorize flashcards containing terms like Tolerable misstatements is used to select the sample, In evaluating results for tests of details, auditors must evaluate exceptions identified. " A tolerable misstatement is the maximum amount of misstatement the auditor can accept in the population without Study with Quizlet and memorize flashcards containing terms like If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information, which of the following (based on the definition of FASB Statement No. , The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the If tolerable misstatement is $120,000, and the upper limit on the account's possible misstatement is less than $120,000, then the account is considered to be _____ Fairly Stated. Study with Quizlet and memorize flashcards containing terms like b, d, c and more. Which one of the following is a proper course of action for the auditor when the total estimated misstatement exceeds the tolerable misstatement? a. A high level of detection risk. Study with Quizlet and memorize flashcards containing terms like The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the A. b. When using MUS, an auditor found that the sampling interval should be $15,755. Individually significant items total $325,000. Projected misstatement; Expected misstatement. an increase in the tolerable misstatement from $30,000 to $60,000 c. 28 d. Test of details risk, The sampling method used to examine a population when the auditor wants to estimate a Study with Quizlet and memorize flashcards containing terms like Which of the following is an element of sampling risk? (1) Choosing an audit procedure that is inconsistent with the audit objective (2) Concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement. Using the difference estimation technique, Smith has properly estimated a projected misstatement of an overstatement of Study with Quizlet and memorize flashcards containing terms like Georgia used MUS to investigate whether the Investment Securities of Beacon Hill Company was materially correct (whether she did this manually or used ACL does not matter). does not apply if the auditor plans to issue an unmodified opinion C. A comparison should be made between the total predicted misstatement and the tolerable misstatement for the account balance or the class of transactions, and adequate consideration should be given to sampling risk. , The most important difference between (a) tests of controls and substantive tests of transactions and (b) tests of details of balances is A. 1. An increase in the desired level of assurance that the tolerable Study with Quizlet and memorize flashcards containing terms like Stratification of the population generally results in a more efficient sampling plan. B) Functions as a substantive test and as a test of controls. Study with Quizlet and memorize flashcards containing terms like Allowance for sampling risk, Audit Sampling, Basic Precision and more. Effectiveness of the audit, As a result of tests of controls, an auditor assessed control risk too Study with Quizlet and memorize flashcards containing terms like Disadvantages of MUS include _____. A low assessed level of control risk. A low assessed level of control risk C. evaluate audit findings-estimate total misstatement in each account-combine the estimated Study with Quizlet and memorize flashcards containing terms like The allowance for sampling risk for a substantive procedure is determined based in part on the tolerable misstatement in the account. Which of the following is an element of sampling risk? 1. a reduction is the risk of incorrect acceptance from 10 to 5 percent b. Upper misstatement limit; Tolerable misstatement. Study with Quizlet and memorize flashcards containing terms like The risk of incorrect acceptance and the risk of overreliance (Type II Errors) relate to the: A) preliminary estimates of materiality levels. An increase in the amount of tolerable misstatement d. In this case, the increase in population variability results in an increase in sample size, whereas the larger tolerable misstatement results in a decrease in sample size. a. About Quizlet; How Quizlet works; Careers (Planned) Detection risk (DR) is the risk that a material misstatement would not be caught by audit procedures. An auditor should determine a tolerable misstatement threshold at the overall financial statement level, but not at the account or disclosure level. False, Statistical sampling assists auditors in determining the sufficiency of evidence gathered. , In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is inverse. Measure of tolerable misstatement but not the expected amount of misstatement. Does not support the tolerable misstatement for some or all financial statement assertions. planning materiality. The identification of misstatements in the prior-period audit may result in, . The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Materiality for the Which one of the following is a proper course of action for the auditor when the total estimated misstatement exceeds the tolerable misstatement? Using classical variables sampling, the projected population misstatement is $40,000 and the confidence bound is $2,400. 2) best describes that information? A. Study with Quizlet and memorize flashcards containing terms like Sampling used for tests of details provides results in terms of: a. Study with Quizlet and memorize flashcards containing terms like A decrease in the tolerable misstatement has what effect on the required sample size?, A dual purpose test simultaneously:, An advantage of using statistical sampling techniques is that such techniques: and more. To calculate the required sample size, the auditor usually determines the: a. the auditor would be justified calculating overall materiality equal to 5% of pre-tax income or $175,000. Study with Quizlet and memorize flashcards containing terms like If the projected misstatement in a nonstatistical sampling is $8,000, while the tolerable misstatement is $9,000, what would an auditor likely conclude? A. The misstatement hides a failure to meet analysts' expectations B. The misstatement hides a failure to meet analysts' expectations. The amount of misstatement that management is willing to tolerate in the financial statements c. Ratio of expected misstatement to tolerable misstatement. A low level of tolerable misstatement, Which of the following sample planning factors would influence the sample size for a Study with Quizlet and memorize flashcards containing terms like Which of the following is not a concern as to whether a misstatement is qualitatively material? A. Projected misstatement d. This consideration should Be related to the auditor's business risk. exception rates. Since the projected misstatement is less than the tolerable misstatement, the account is not misstated. True False, Discovery sampling is equivalent to an attributes sampling plan with a specified expected deviation rate of 0 percent. The auditor must consider the possibility that the true population misstatement is greater than the amount of misstatement that is tolerable when the auditor is performing: (1) Nonstatistical Study with Quizlet and memorize flashcards containing terms like List the steps in a statistical sampling application for substantive testing. Tolerable misstatement is a. The amount of materiality that is left over after recording necessary adjustments d. Materiality for the balance sheet as a whole. True b. His sample results are as Study with Quizlet and memorize flashcards containing terms like If the projected misstatement in a nonstatistical sampling is $8,000, while the tolerable misstatement is $9,000, what would an auditor likely conclude? Since the projected misstatement is less than the tolerable misstatement, the account is not misstated. A statistical sampling method that automatically provides stratification when using systematic selection is a. Tolerable misstatement is $25,000. Increase the risk of incorrect rejection, In a monetary-unit sampling plan, the upper misstatement limit is $11,200 Study with Quizlet and memorize flashcards containing terms like The sample size for a substantive test of details of an account balance is affected by a number of factors. B. It is often applied at the account or transaction level and is directly related to performance Study with Quizlet and memorize flashcards containing terms like Tolerable misstatement is also called performance materiality by the AICPA, The concept of materiality as it applies to a financial statement audit, An auditor has determined a $10 million materiality level for a client's balance sheet and $3 million for the income statement. the auditor wants to choose a level of assurance so tolerable misstatement is less likely to be exceeded by the actual misstatement in the population. The auditor will analyze the detected misstatements for some common problems. 5% of the population dollars). Materiality allocated to a specific account. , When should companies use a materaility benchmark other than income before taxes? and more. 60. An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. A reciprocal population is: Quizlet for Schools; Parents; Study with Quizlet and memorize flashcards containing terms like preliminary audit planning, engagement letter, materiality definition and more. Analytical procedures risk B. , An erroneous decision to assess control risk at excessively high levels can have an adverse effect A decrease in the amount of expected misstatement in the population to be tested. 2. What is the minimum sample size that the auditor should use? a. Eliminate the risk of nonsampling errors. A clearly trivial amount. The auditor can expand the sample. , In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. A measure of sampling risk added and subtracted to the projected misstatement to form a confidence level. "Detection risk is the risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements" Factors affecting An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. Expected misstatement b. , Nonstatistical sampling may be used for tests of controls but should never be used for substantive procedures. The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is the acceptable risk of incorrect acceptance. c) A decrease in the amount of expected misstatement in the population to be tested. and more. is the maximum Study with Quizlet and memorize flashcards containing terms like A lower control risk requires:, When using monetary uniting sampling, evaluating the likelihood of unrecorded items in the population is, For cash receipts, the occurrence transaction-related audit objective affects which of the following balance-related audit objectives: and more. If either lower or upper misstatement bounds is Study with Quizlet and memorize flashcards containing terms like The process which requires the calculation of an interval and then selects the items based on the size of the interval is, Both sampling and nonsampling risks are associated with, When defining the population and the sampling unit for tests of details of balances, and more. In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if A. Tolerable misstatement does not affect sample size 4 Refer to Exhibit 8. The misstatement increases management's compensation. This term is Study with Quizlet and memorize flashcards containing terms like Scott Duffney, CPA, has randomly selected and audited a sample of 100 of Will-Mart's accounts receivable. Relevant. Increase sample size b. 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. , What is the purpose of applying stratified sampling to a population? and more. Ratio of tolerable misstatement to the total population value. Study with Quizlet and memorize flashcards containing terms like ____whether statistical or nonstatistical, is the process of selecting and evaluating a sample of audits from an audit population such that auditors expect the sample to be representative of Study with Quizlet and memorize flashcards containing terms like When selecting a sample size for substantive tests of balances which factor, other factors being equal, would result in a larger sample? A) a decrease in the tolerable misstatement B) small expected misstatements C) an increase in the tolerable misstatement D) an increase in the acceptable risk of incorrect . His sample results are as Holding all other factors constant, which of the following factors results in an increase in sample size for substantive test? a. Therefore, the letter C is not the correct answer. , an issuer. Adjust the account balance d. Audit Study with Quizlet and memorize flashcards containing terms like What are the three basic steps in applying materiality on an audit?, When are overall materiality and tolerable misstatement performed?, What are audit findings evaluated? and more. Monetary-unit sampling (MUS) is used. The amount of the overall materiality that is used to establish a scope for the audit procedures for Study with Quizlet and memorize flashcards containing terms like An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to a. efficiency of the audit. 87 b. Estimated misstatement. A low frequency of misstatement. , 9-5: Explain briefly the term systematic selection as used in auditing and indicate the precautions Study with Quizlet and memorize flashcards containing terms like The sample size for a substantive test of details of an account balance is affected by a number of factors. Bonds are frequently issued by companies in small amounts. Conduct other substantive procedures c. C) Functions as an analytical Study with Quizlet and memorize flashcards containing terms like A decrease in the tolerable misstatement has what effect on the required sample size?, a dual purpose test simultaneously:, An advantage of using statistical sampling techniques is that such techniques: and more. All of 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. ) Low, Many, Likely B. Tolerable misstatement is set for the sample from the population. expected misstatement is 900. Study with Quizlet and memorize flashcards containing terms like In determining materiality on an audit engagement the CPA should assume that the users of the audited financial statements are A. Significant. Because emma's designs is a for-profit manufacturer and is not close to break-even, pre-tax income is a reasonable basis for materiality. A primary emphasis in auditing debt is on existence. About us. That the results of the work support the conclusions reached. Declare that Study with Quizlet and memorize flashcards containing terms like Which of the following statements is correct about monetary unit sampling?, If the ___________ is less than the _________, the audit team would conclude that the account balance is fairly stated. ) High, Few, Likely D. Find step-by-step Computer science solutions and the answer to the textbook question The determinants for sample size include all of the following except: a. Study with Quizlet and memorize flashcards containing terms like When using monetary unit sampling, the recorded dollar population is a definition of all the items in the: A) population. every 900th dollar in the account will be sampled. , A common formula for a nonstatistical sample size is: Sampling population book value ÷ ( _____ misstatement - _____ misstatement) × _____ level Study with Quizlet and memorize flashcards containing terms like The sample size for a substantive test of details of an account balance is affected by a number of factors. Tolerable misstatement does not affect sample size. Lerne mit Quizlet und merke dir Karteikarten mit Begriffen wie Stratification of the population generally results in a more efficient sampling plan. because the client is of moderate risk with some higher risk accounts, it would be appropriate to set tolerable misstatement at 50% of The tolerable misstatement amount When confirming receivables in testing for overstatements, assume that there are few or no misstatements expected and the selection will be based on the dollar value of individual items. Amount of misstatement Study with Quizlet and memorize flashcards containing terms like What are the three basic steps in applying materiality on an audit?, When are overall materiality and tolerable misstatement Tolerable Misstatement refers to the maximum error in a population that the auditor is willing to accept without requiring an audit adjustment. Variability in the dollar amounts of inventory items: No Risk of incorrect acceptance: No b. tolerable misstatement is 900. Population size. Since the projected misstatement is less than Study with Quizlet and memorize flashcards containing terms like An auditor would conclude that an account balance is not fairly stated if the _____ is less than the _____. A high level of detection risk B. D. in what the auditor wants to measure. Jose established the following information related to the Year 3 audit: Materiality for year-end audit: $16,000 Tolerable misstatement: $11,000 Based on the results of his accounts receivable procedures, Jose suggests adjustments for the accounts Study with Quizlet and memorize flashcards containing terms like 9-2: Describe the difference between sampling risk and nonsampling risk. Tolerable misstatement and more. An increase in the tolerable misstatement from $30,000 to $60,000 (a reduction in the risk of incorrect acceptance and an increase in the expected misstatement DOES cause a larger sample) Assume that an account with a recorded balance Tolerable misstatement when performing a substantive test _____ A. Preliminary estimates of materiality levels C. Study with Quizlet and memorize flashcards containing terms like In which audit procedure would sampling be appropriate? Analytics Inquiry Observation Confirmation, What is sampling risk? The correct answer is "tolerable. Study with Quizlet and memorize flashcards containing terms like If the projected misstatement in a nonstatistical sampling is $8,000, while the tolerable misstatement is $9,000, what would an auditor likely conclude?, A dual purpose test simultaneously: A) Addresses two different accounts. Will-Mart has 3,000 accounts receivable accounts with a total book value of $3,650,000. sampling risk attribute sampling tolerable misstatement population size, Monetary-unit sampling (MUS) is based on _____ theory modified to express a monetary conclusion rather Study with Quizlet and memorize flashcards containing terms like The negative request form of accounts receivable confirmation my be used when the (Assessed Risks of Material Misstatement Are, Small Balances Are, Consideration by the Recipient Is) A. The misstatement changes a Study with Quizlet and memorize flashcards containing terms like In monetary unit sampling, a sampling interval of 900 means that every 900th item will be selected. Study with Quizlet and memorize flashcards containing terms like The 3,000 accounts receivable of DEF Company have a total book value of $60,000. ratio Ratio estimation is preferred when ____. Study with Quizlet and memorize flashcards containing terms like Which of the following statements is true of the tolerable rate of deviation? a. He believes that $30,000 represents a reasonable tolerable misstatement. Tolerable misstatement is a. Insignificant. Potential risk of account. Study with Quizlet and memorize flashcards containing terms like A sampling technique used to reach a conclusion about a population in terms of a rate (frequency) of occurrence. The risk the internal control system will not detect a material misstatement of a financial statement assertion. The misstatement increases management's compensation, Tolerable misstatement is: A. The most likely explanation for this situation is that: A. The primary advantage of such a A) a decrease in the tolerable misstatement B) small expected misstatements C) an increase in the tolerable misstatement D) an increase in the acceptable risk of incorrect acceptance and more. That the objectives of the procedures were achieved. does not apply if the auditor plans to issue a modified opinion B. The auditor can ask the client to correct the known misstatements. MUS is commonly used by auditors to test accounts such as _____. the tolerable risk. is the minimum dollar amount of misstatement that an auditor is willing to accept within the population tested, and conclude that the population is presented fairly D. You have set materiality to be $1,000,000 and tolerable misstatement to $750,000. The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee. The there is an unacceptably high risk because the tolerable misstatement exceeds the An account has a balance of 1. Role in Audit Planning. determine overall materiality 2. fairly stated Audit sampling is most often used in substantive testing to test the hypothesis that a financial statement account is _____. (Objective 1), Identify how often does the client acceptance/continuance process occurs for each client. A low frequency of misstatement D. False, The tolerable misstatement is the level of misstatement the auditor expects to detect in the population. The difference method is used to estimate the Study with Quizlet and memorize flashcards containing terms like When sampling is used to estimate monetary misstatement, a confidence limit must be established as an allowance for _____. d. Nonsampling risk D. The misstatement is less than 5% of pretax income. Amount of misstatement an auditor should detect through audit procedures. , The mean misstatement per sampling item is calculated by dividing the known audit differences in the sample by the _____. , The following information relates to a non statistical sample used for a price test of receivables. C. Top creator on Quizlet An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. ratio-estimation sampling c. An increase in the desired level of assurance that the tolerable misstatement is not exceeded by the actual amount of misstatement in the population. Study with Quizlet and memorize flashcards containing terms like Materiality in Dollars, Materiality Nature, Determining Materiality Threshold and more. Ultimately, the determination of tolerable misstatement levels is a subjective process that relies heavily on the auditor’s professional judgment and experience. Expected amount of misstatement and the measure of tolerable misstatement. Given this information, and a confidence factor of 1. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in Assume you are auditing a publicly traded company. Study with Quizlet and memorize flashcards containing terms like Which of the following conditions necessitates a larger sample size? A. Hill plans to use the following MUS sampling table: Confidence Factors for Overstatements Number of Overstatements Risk of Incorrect Acceptance 1% 5% The project misstatement = (Sample net misstatement / book value of sample x population book value) when using _____ estimation. , Which of the following should a predecessor auditor perform before reissuing a Study with Quizlet and memorize flashcards containing terms like Which of the following would lead to a larger sample size? A)low inherent risk B)low control risk C)larger tolerable misstatement D)unsatisfactory results in other related substantive procedures, As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will Study with Quizlet and memorize flashcards containing terms like The risk of incorrect acceptance relates to the allowable risk of tolerable misstatement. You identify that the only misstatement is an understatement of Long-term Debt by $150,000. Ratio estimation, When evaluating the results of an MUS sampling application, the audit team should compare the upper limit on misstatements to the: a. Stratifying the population when appropriate c. The debt covenants require the company to keep the debt-to-equity ratio to be below 0. Desired Confidence level. an increase in the expected Study with Quizlet and memorize flashcards containing terms like Which of the following is an element of sampling risk?, In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the:, Which of the following statistical sampling techniques is least desirable for use by the auditors? and more. Study with Quizlet and memorize flashcards containing terms like a. In tests of controls and a) An increase in the amount of tolerable misstatement. 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. Tolerable misstatement is best described as a. Tolerable misstatement is a benchmark that informs the auditor’s approach during the initial stages of an audit. Tolerable misstatement. Tolerable misstatement is $40,000 and expected misstatement is $10,000. ) High, Many, Likely, In a test of purchase orders, the auditor Study with Quizlet and memorize flashcards containing terms like Which of the following major stages of the audit is most closely related to variables sampling? a reduction in the risk of incorrect acceptance from 10 percent to 5 percent b. Monetary unit sampling d. If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least likely to: A) increase sample size. Assuming all other information remains constant, which of the following would lead to a smaller sample size? A) Less reliance on internal controls. , An observed condition that Study with Quizlet and memorize flashcards containing terms like In which of the following circumstances is it least likely that tests of controls will be performed?, What effect on sample size does increasing the allowable risk of incorrect acceptance have for a substantive test?, Discovery sampling is particularly effective when: and more. Minimize the failure to detect errors and fraud. Mean-per-unit estimation c. The overall effect Study with Quizlet and memorize flashcards containing terms like Scott Duffney, CPA, has randomly selected and audited a sample of 100 of Will-Mart's accounts receivable. financial experts. Tolerable misstatement cannot be determined until the sample results are evaluated. United States; Canada Study with Quizlet and memorize flashcards containing terms like Which of the following best describes why publicly-traded companies follow the practice of having the external auditor appointed by the audit committee and ratified by the stockholders? -to promote an adversarial relationship between the auditor and the corporation's management -to comply with Study with Quizlet and memorize flashcards containing terms like Which of the following is an element of sampling risk? Multiple Choice Choosing an audit procedure that is inconsistent with the audit objective. ordinary people who know little or nothing about business, economic activities, and accounting. Study with Quizlet and memorize flashcards containing terms like Population Size = 10,000 items Book value = $8,000,000 Tolerable misstatement = $300,000 Sample Size = 100 items. She determined that the Upper Misstatement Limit was less than the Tolerable Misstatement. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes. When determining a tolerable misstatement threshold, an auditor should take into account the amount of misstatements that were accumulated in prior periods. A. 5 million. Study with Quizlet and memorize flashcards containing terms like Bill Jones wishes to use nonstatistical sampling to select a sample of his client's 3,000 accounts receivable, which total $330,000. Quizlet for Schools; Parents; This is the auditors failure to recognize a misstatement in internal control and more. c. 20,000 ; 5,000 Audited Value: 16,000 ; 2,500 Assume that Zimmerman's parameters included a tolerable misstatement of $60,000 and a risk of incorrect acceptance of 5 percent What is the primary objective of testing all individually significant items rather than sample testing? to increase the audit risk at which a decision will be reached from the results of the sample selected to increase sample size to accept no sampling risk for items greater than tolerable misstatement to increase the size of the confidence bound around the projected misstatement Study with Quizlet and memorize flashcards containing terms like Does it matter what clients we take on?, Recognize the purpose for obtaining knowledge about a client's business and industry. Study with Quizlet and memorize flashcards containing terms like Which component of the expanded audit risk model is most closely associated with the risk of incorrect acceptance? A. Since the projected misstatement is less than the tolerable Study with Quizlet and memorize flashcards containing terms like Statistical sampling for substantive tests (DR), When sampling is used to estimate monetary misstatement:, Sampling Risk and more. The sample included 125 of the total 1,250 items with a recorded value of $550,000. He also has assessed both the combination of inherent and control risk at the maximum level and the risk Study with Quizlet and memorize flashcards containing terms like Zimmerman is auditing a client's accounts balance recorded at $1 million using monetary unit sampling. Study with Quizlet and memorize flashcards containing terms like The engagement partner and the manager review the work of the engagement team members to evaluate which of the following? That the work was preformed and documented. Assume that the risk of incorrect acceptance is 10%, tolerable misstatement is 5% of population dollars, and expected misstatement is 30% of tolerable misstatement (in other words, 1. 162 c. A low level of tolerable misstatement. Be related to preliminary judgments about materiality levels. Study with Quizlet and memorize flashcards containing terms like An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. Since the projected misstatement is less than the tolerable Study with Quizlet and memorize flashcards containing terms like A decrease in the tolerable misstatement amount has what effect on required sample size for nonstatistical variables sampling?, Which of the following is correct with respect to nonstatistical variables sampling?, In attributes sampling, what effect does an increase in the acceptable risk of assessing control Study with Quizlet and memorize flashcards containing terms like Which of the following statistical techniques are used to test controls?, In determining the tolerable deviation rate for a test of controls, the auditors consider:, If the actual deviation rate in the sample is greater than the expected deviation rate: and more. (9-1), How is the sampling unit defined when monetary-unit sampling is used for statistical sampling? How is the sampling unit defined when classical variables sampling is used? (9-2), How are the desired confidence level, the tolerable A) A decrease in the tolerable misstatement B) Small expected misstatements C) An increase in the tolerable misstatement D) An increase in the acceptable risk of incorrect acceptance A 2) The auditors principal objective when using a sample of tests of details of balances is whether the: A) account balance being audited is fairly stated. Tolerable misstatement is the materiality threshold for a particular sampling procedure. The deviation rates of both the auditor's sample and the population is less than the tolerable rate. Correct Projected misstatement; Upper misstatement Study with Quizlet and memorize flashcards containing terms like ARIA, What happens to the sample size as ARIA increases?, What is the population in nonstatisstical sampling and more. d) Stratifying the population when appropriate. Study with Quizlet and memorize flashcards containing terms like (T/F): Statistical sampling eliminates any professional judgment for the auditor, (T/F): A sample of all items in a population will have a zero sampling risk, (T/F): Tolerable misstatement is inversely related to c) Tolerable. Choosing an audit procedure that is inconsistent with the audit objective 2. There are relatively few transactions in the capital acquisition and repayment cycle, and each transaction is typically highly material. all of these would result in selecting a larger sample. If tolerable misstatement is $120,000, and the upper limit on the account's possible misstatement is less than $120,000, then the account is considered to be _____ _____. either CPAs or individuals who have ready access to CPAs in order to Study with Quizlet and memorize flashcards containing terms like Which of the following is not a concern as to whether a misstatement is qualitatively material? A. If lower AND upper misstatement bounds are less than tolerable misstatement, then accept population. If selecting the sample manually, the auditor should The selection method used by Cruz was, Romo, CPA performed nonstatistical sampling to examine the inventory balances of Jones Company. As a result, the auditor will consider items in the Study with Quizlet and memorize flashcards containing terms like The tolerable misstatement is the level of misstatement the auditor expects to detect in the population. Efficiency of the audit D. Study with Quizlet and memorize flashcards containing terms like Hill has decided to use monetary-unit (MUS) sampling, sometimes called dollar-unit sampling, in the audit of a client's accounts receivable balances. , Statistical sampling techniques permit the auditors to eliminate Study with Quizlet and memorize flashcards containing terms like If the projected misstatement in a non statistical sampling is $8,000 while the tolerable misstatement is $9,00, what would an auditor likely conclude?, A dual purpose test simultaneously, If all other factors specified in an attributes sampling plan remain constant, decreasing the tolerable rate and decreasing the risk Study with Quizlet and memorize flashcards containing terms like The auditor's sample would indicate that the client's account balance is fairly stated when the _____ is less than the _____. A direct relationship exists between the level of tolerable misstatement established for a given financial statement account and the extent of testing that will be done for that account; that is, higher tolerable misstatement = more substantive testing. D) Neither the expected amount of misstatement nor the Study with Quizlet and memorize flashcards containing terms like List the steps in a statistical sampling application for substantive test, How is the sampling unit defined when monetary-unit sampling is used for statistical sampling? How is the sampling unit defined when classical variables sampling is used?, How are the desired confidence level, the tolerable misstatement, Study with Quizlet and memorize flashcards containing terms like True or false: As with attribute sampling, population size does not influence sampling computations when testing monetary account balances. Romo determined the expected misstatement to be $25,000 and the tolerable misstatement to be $40,000. Not be adjusted for qualitative factors. Study with Quizlet and memorize flashcards containing terms like Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's:, During the initial planning phase of an audit, a CPA most likely would:, Tolerable misstatement is: and more. hphx idmi qzgl wcnpfto emdvfd kzhi kqzd cuvw fkytk upsg