Question
Lam, a public accountant, is auditing the financial statements of his client, Harvesters Ltd., a company that sells and distributes agricultural equipment across Canada. Lam
Lam, a public accountant, is auditing the financial statements of his client, Harvesters Ltd., a company that sells and distributes agricultural equipment across Canada. Lam has performed a preliminary evaluation of the company's internal control over sales transactions and has concluded that the quality of system design is very good. The system was developed for the client and installed by a well-respected consulting firm, and the system relies heavily on automated information systems. Lam decides that performing tests of controls using Audit Data Analytics (ADAs) would likely be cost-effective. In addition, after completing his assessment of control risk over revenue transactions, Lam plans to use monetary unit sampling to verify the client's recorded accounts receivable at year-end. In planning the engagement, Lam has assessed materiality to be $175,000.
Requirement a. How could ADAs be used to assist in sample selection, assuming that the population of year-end accounts receivable is available to Lam in a data file compatible with his software? (Select all that apply.) A. If the sample is selected using block sample selection, the most relevant accounts are chosen and are listed with cumulative subtotals. Picking a number would identify the customer account. B. If the accounts receivable with the largest balance are selected, the recorded amounts in the accounts receivable are listed with cumulative subtotals. A certain number would then identify a dollar in the cumulative total and a corresponding customer account in the list. C. If the sample is selected randomly, the recorded amounts in the year-end accounts receivable are listed with cumulative subtotals. A particular random number would then identify a dollar in the cumulative total and a corresponding customer account in the list. D. If the sample is selected systematically, choose a random start and then choose each successive kth dollar in the cumulative total. Details concerning the corresponding customer account receivable could then be examinedStep by Step Solution
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