CASE 10
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
(1)
The sheer quantity of transactions that are processed by most modern
corporations prohibits the auditor from attempting to evaluate more than a portion
of the total. Many large companies record millions of transactions per year, a
number that could not possibly be verified by an audit team at an acceptable
(2)
Statistical sampling does not create additional work; rather, it guides the auditor
in performing the proper amount of work. In addition, although statistical
sampling may initially appear to be complex, the various procedures become
significantly easier with practice.
(3)
Sampling for attributes is utilized whenever an auditor wants to estimate the
occurrence rate of a specified characteristic. This procedure is frequently applied
(4)
Mitchell is seeking to verify that a proper cutoff has been performed by the client
in recording its year-end accounts payable and accrued expenses. In this
(5)
Once again, as in Question (1), the auditor is seeking only reasonable, not
absolute, assurance about the fair presentation of the client‘s financial
statements. Thus, the presence of some errors, especially if they are not
(6)
In most examinations, previous experience with the client and its personnel will
assist the auditor in arriving at an estimation of an actual exception rate.
(7)
The 6% figure established by Mitchell in this case is a good example of the
importance of an auditor‘s ability to use judgment developed through experience.
(8)
According to Exhibit 10-2, a sample size of 40 (left column) with 2 errors (top
row) indicates a maximum error rate of 12.8% with a 10% ARACR. Since
(9)
In most cases, the auditor would now seek to apply other procedures to verify the
reported balance. The client might, for example, be requested to reconstruct the
SUGGESTED ANSWERS TO EXERCISES
(1-a)
ABERNETHY AND CHAPMAN
Sampling for Attributes
Client: The Lakeside Company
Year Ending: December 31, 2012
Audit Area: Accrued Expenses
Date of Testing: February 4, 2013
(1) State the objectives of the audit testing:
(2) Define the attribute or attributes to be estimated:
(3) Define the population:
(4) Define the sampling unit:
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(5) Specify the acceptable risk of assessing control risk too low and discuss
any factors affecting this decision:
(6) Estimate the exception rate of the population, and discuss any factors
affecting this estimation:
(7) Specify the tolerable exception rate and discuss any factors affecting this
decision:
(8) Indicate the sample size and show the use of the finite correction factor if
applicable:
90
Exhibit 10-1 is appropriate for a 10% ARACR. The expected
(9) Indicate the method used to draw a random sample:
(10) Indicate the number of deviations discovered, the rate of deviations in the
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(11) From a quantitative perspective, is the population reliable? (Include the
rationale for your answer):
(12) Describe the types of deviations that were found:
(13) Recommendations:
Luck’s analysis should be considered a fair representation of the year–
(1-b)
If three errors were found, then the results for questions (10) through (13) of