Exam 19: Variables Sampling

Bama's accounts receivable were recorded at $600,000.Assume that the auditor determined a sample size of 20 customer accounts and prepared confirmations to those customers.One misstatement was determined; an account recorded at $10,000 was confirmed to have a balance of $5,000. Using an incremental reliability factor of 1.58 (corresponding to the risk of incorrect acceptance of 5 percent),what is the incremental allowance for sampling risk?

The following are some of situations in which using either monetary unit sampling (MUS)or classical variables sampling would be preferable.Using the letters M (for monetary unit sampling-MUS)or C (for classical variables sampling). ____ 1.Several sampling units in the population have a zero or negative balance. ____ 2.The auditor would like to examine a smaller number of items. ____ 3.The account balance is susceptible to understatement error. ____ 4.The account balance includes a few logical units with very large dollar balances. ____ 5.The auditor is able to form a reasonable estimate of the variability of the population. ____ 6.The auditor would like to ensure that the sampling method provides a conservative (higher)estimate of misstatement in the account balance. ____ 7.The account balance is susceptible to overstatement error.

Which of the following would not be estimated using variables sampling?

A method of variables sampling that defines the population as the number of dollars in an account balance or class of transactions is referred to as

If the upper limit on misstatements is calculated at $17,800 and the tolerable misstatement is $15,000,what is the minimum amount of adjustment necessary for the audit team to issue an unqualified opinion on the client's financial statements?

If the recorded amount of the sample item is $1,000,the audited value is $600,and the sampling interval is $5,000,the projected misstatement would be

Two factors that are considered by the auditor in determining sample size for classical variables sampling but not MUS are the risk of incorrect rejection and the _______________________________________________.

Which of the following components is not used in determining the upper limit on misstatements?

In a first-year engagement,auditors cannot estimate the expected error because they have no prior historical relationship with the client.

The total amount of actual monetary misstatement found in a sample is referred to as the

When the _______________________ exceeds the ______________________,the audit team risks incorrect acceptance.

Which of the following components of the upper limit on misstatement will exist in all MUS sampling applications,including those for which no misstatements are found?

Indicate how each of the following conditions affects sample size in a monetary unit sampling (MUS)application by using the letters I (increase),D (decrease),or N (no effect),assuming that all other factors are held constant. ____ 1.An increase in the expected error from $5,000 to $10,000. ____ 2.A decrease in the population size from $1,500,000 to $1,350,000. ____ 3.An increase in the tolerable misstatement from $25,000 to $35,000. ____ 4.An increase in the risk of incorrect rejection from 5 percent to 10 percent. ____ 5.A decrease in the risk of incorrect acceptance from 5 percent to 1 percent.

Which of the following is considered in determining the sample size in a classical variables sampling application but not in a monetary unit sampling (MUS)application?

Which of the following is found by dividing the amount of misstatement noted in a logical unit by the recorded amount of that logical unit?

If the upper limit on misstatement exceeds the tolerable misstatement,the auditor could not initially conclude that the account balance is fairly recorded.

Which of the following sampling risks does the auditor consider in determining the sample size in a monetary unit sampling (MUS)application?

One logical unit can account for more than one sample selection in a monetary unit sampling (MUS)application.

K.Samantha,CPA,used stratified random selection in the statistical sampling plan.Which of the following is the most likely reason this approach was used?

How does the auditor establish the level of tolerable misstatement in a variables sampling application?