Questions and Answers of Statistical Sampling To Auditing

Charles White, CPA, has decided to use random selection in the audit of sales. The sales transactions are numbered from 1 to 3150. They are listed 35 to a page in the sales journal. The sample size
Lenter Supply Company is a medium-sized distributor of wholesale hardware supplies in the central Ohio area. It has been a client of yours for several years and has instituted an excellent system for
You plan to select a random sample of 100 vouchers from a voucher register. Each voucher is identified by a month and voucher number. Vouchers start with the number 1 each month. The largest voucher
The Bengton Manufacturing Company maintains one cash disbursement journal, but for purposes of relations with local banks, two different bank accounts are used. Internal controls are the same for
The following sales procedures were encountered during the regular annual audit of Marvel Wholesale Distributing Company.Customer orders are received by the sales order department. A clerk computes
You are doing price tests of raw materials inventory for the Merties Manufacturing Company using statistical sampling. Your sampling plan calls for a random sample of 125 part numbers. Since you are
Jack Ronson, CPA, is confirming accounts receivable for Regional Book Wholesale Company. He has decided to use stratified estimation. The basis for stratification and the population sample
The cash disbursement journal for Jones Electric includes checks listed in sequential order. The checks for the year begin with 2167 and end with 8573. A sample of 75 canceled checks is desired. The
The payroll journal for Robinson Furniture Company includes 2,628 payroll checks for the year ended June 30. The first check number is 26,437 and the last one is 29,064. The checks are recorded
This problem requires the availability of a computer or computer terminal that is programmed to select random numbers.Required :a. Use the computer or terminal to select a sample of 75 canceled
Roger Starr, CPA, has decided to use dollar unit sampling to select a random sample of 120 items from a voucher register. The voucher register has 194 pages, with 60 items per page. The total in the
The following is the entire extended inventory for Jake’s Bookbinding Company. The population is smaller than would ordinarily be used for statistical sampling, but an entire population is useful
Distinguish between the terms errors and irregularities as used in the professional literature. What is the difference in the auditor’s responsibility for the discovery of errors as compared to
Describe what is meant by an overall level of assurance. Explain why each of the following statements is true:a. A CPA firm should attempt to achieve the same overall level of assurance for all audit
State the two categories of circumstances that determine the overall level of assurance and list the factors that the auditor can use to indicate the degree to which each category exists.
When an auditor issues an unqualified opinion, it is the same for a publicly held company and a small, closely held firm. What justification is there for providing lower levels of assurance for
Auditors have not been successful in measuring the levels of assurance achieved in different audits. How is it possible to think in terms of obtaining increased or decreased levels of assurance
Explain the logic that results in the conclusion that the auditor should accumulate more audit evidence when there #is a high expectation of errors than when there is a low expectation.
List the factors affecting the auditor’s expectation of error and explain why each factor should affect the evidence needed to achieve a given level of assurance.
Explain the relationship between the factors affecting the expectation of error, the desired overall level of assurance, and the accumulation of audit evidence.
Assume that the client’s internal controls over the recording and classifying of permanent asset additions are considered weak because the person responsible for recording new acquisitions has
Each of the following questions concerns the concept of materiality in auditing:a. What criteria should the auditor use in deciding whether an estimated error in inventory, based on a sample, is
List and describe the major ways the auditor obtains an understanding of a client and its business. How does the auditor’s understanding of the client and its business affect the conduct of the
Explain why the auditor must study and evaluate the system of internal control and test its effectiveness as a part of the ordinary audit.
Explain what is meant by a dual-purpose test. Give an example of one.
State the relationship between the preliminary evaluation of an internal control system and tests of compliance.
State the relationship between analytical tests, tests of transactions, and direct tests of balances.
Identify the four ways the auditor can change evidence in a particular engagement. For each of the four, state a circumstance that may affect the decision.
Frequently, questions have been raised regarding the responsibility of the independent auditor for the discovery of fraud (including defalcations and other similar irregularities), and concerning the
You are auditing sales and cash receipts transactions and the related accounts receivable balance for two different companies, each with a balance of \($3,000,000.\) The companies are identical
The concept of materiality is important to the CPA in examination of financial statements and expression of opinion upon these statements.Required :Discuss the following:a. How are materiality (and
Discussed the four evidence decisions that must be made on every audit. These are:1. Appropriate audit procedures 2. Proper sample size 3. Timing of the procedures 4. Particular items selected for
Statements on Auditing Standards in the section on internal control (Section 320B.35) is the following formula:where:S = reliability level for substantive tests R = combined reliability level

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