Name__________________________
ACCTMIS 7500 – AUTUMN 2012 – QUIZ 3
A. (5 points) Which of the following is a sufficient condition for the auditor to test controls? That is, in
which of the following circumstances will the auditor always test controls? (You may check no, one, or
more than one statement.)
____ 1. The audit is being conducted in accordance with generally accepted auditing standards.
____2. The audit is being conducted in accordance with auditing standards of the PCAOB.
____3. The client company’s internal control system is well designed.
____4. The client company’s internal control system is poorly designed.
____5. The expected savings in substantive testing resulting from testing controls are greater than the
costs of testing controls.
B. (7 points) Following is information about an auditor's test-of-controls sampling plan for three controls
related to the purchases-and-disbursements cycle. Questions 6-10 are based on this information.
Acceptable Risk
of Assessing
Tolerable
Control
CR Too Low
Deviation Rate
A
5%
6%
Sample Number of
Size Deviations
103
1
Computed Upper
Deviation Rate
4.7%
B
5%
4%
74
0
4.0%
C
5%
10%
89
3
8.4%
6. If the "acceptable risk of assessing control risk too low" for control B were changed to 10 percent,
would the resulting sample size be more than, less than, or equal to 74? __________
7. If the tolerable deviation rate for control A were changed to 8 percent, would the resulting sample
size be more than, less than, or equal to 103? __________
8. Which control (A, B, or C) does the auditor consider to be the most important? __________
9. Control B is "a vendor invoice exists for each receiving report." What should be the auditor's
sampling unit? __________
10. For which control(s), if any, can the auditor conclude that the control is operating (that is, accept
the planned level of control risk)? (The qualitative analysis of the causes of any deviations
supports the quantitative analysis.) __________
(MORE ON BACK!)
C. Questions 11 and 12 are independent problems related to monetary unit sampling. Tables are
attached!
11. (4 pts) Calculate the sampling (or skip) interval for the following:
Tolerable misstatement
$ 120,000
Acceptable risk of incorrect acceptance
10%
Expected misstatement
$ 30,000
Book value of accounts receivable
$4,000,000
Number of accounts
500
12. (8 pts) The sampling interval is $100,000, based on an acceptable risk of incorrect acceptance of
20%. Tolerable misstatement is $200,000 overstatement; expected misstatement is $30,000
overstatement; population (i.e., book) value is $8,000,000. Sample results yield three misstatements:
Book Value
$
30
$
200
$120,000
Audit Value
$
18
$
220
$110,200
Each of these accounts was selected only once.
Calculate the projected misstatement (PM) and the upper misstatement limit (UML), considering all the
misstatements. Should the auditor “accept” or “reject” the client’s book value? If you recommend
“rejection,” specify the minimum adjustment you would require to accept the account. Provide support
for your answers, showing all relevant calculations.
Sample size table for attribute sampling--90% desired confidence
level
(i.e., 10% risk of incorrect acceptance)
expected
population
deviation
rate
2%
3%
4%
5%
6%
0.00%
0.25%
0.50%
0.75%
1.00%
1.25%
1.50%
1.75%
2.00%
2.50%
114(0)
194(1)
194(1)
265(2)
*
*
*
*
*
*
76(0)
129(1)
129(1)
129(1)
176(2)
221(3)
*
*
*
*
57(0)
96(1)
96(1)
96(1)
96(1)
132(2)
132(2)
166(3)
198(4)
*
45(0)
77(1)
77(1)
77(1)
77(1)
77(1)
105(2)
105(2)
132(3)
158(4)
38(0)
64(1)
64(1)
64(1)
64(1)
64(1)
64(1)
88(2)
88(2)
110(3)
Tolerable
Deviation
Rate
Monetary Unit Sampling Misstatement Factors for Sample
Evaluation
80% Desired Confidence Level
Number of
Misstatements
Misstatement
Factor
Incremental
Increase
0
1
2
3
4
5
1.6
3.0
4.3
5.5
6.7
7.9
0.0
1.4
1.3
1.2
1.2
1.2