A book value for each sample item is unknown.

C. There are some observed differences between audited values and book values. D. The audited values are nearly proportional to the book value.

AACSB: Analytic AACSB: Technology AICPA BB: Industry

AICPA BB: Leveraging Technology AICPA FN: Leveraging Technology AICPA FN: Measurement Bloom's: Understand Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation. Source: AICPA

Matching Questions

80. Auditors have a variety of sampling approaches available. For each approach in the first column, identify the correct statement in the second column. Each statement may be used once, more than once, or not at all.

1. Attributes sampling

The most frequently used general method that arrives at an estimated

deviation rate. 1

2. Difference estimation sampling

A classical method that uses both the audited and book values of items in the sample to obtain an estimated total audited

value. 2

3. Discovery sampling

A method that is most effective in circumstances in which auditors expect a very low rate of occurrence of some critical deviation (e.g., a fraudulent cash

disbursement). 3 4. Probability-proportional-to-size

sampling

A classical method that uses only the audited values of items in the sample (not the book values) to obtain an estimated

total audited value. 5 5. Mean-per-unit estimation

sampling

A method that defines the sampling unit as each individual dollar. 4

6. Ratio estimation sampling

A classical method that uses both the audited and book values of items in the sample to obtain an estimated total audited

value. 6 AACSB: Analytic

AACSB: Technology AICPA BB: Industry

AICPA BB: Leveraging Technology AICPA FN: Decision Making AICPA FN: Leveraging Technology Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-03 Understand the different types of sampling plans used in auditing. Topic: Statistical and Nonstatistical Sampling

Essay Questions

81. Audit sampling is used in conjunction with many audit tests, and may be performed on a statistical or nonstatistical basis.

a. Define the term audit sampling.

b. List and explain two advantages of the use of statistical sampling as compared to nonstatistical sampling.

a. Audit sampling is performing a test on less than 100 percent of an audit population to make a conclusion about a characteristic of the population.

b. Statistical sampling may assist the auditors in (only two required):

 Designing efficient samples.

 Measuring the sufficiency of the evidence obtained.

 Objectively evaluating sample results (measuring sampling risk).

AACSB: Analytic AACSB: Technology AICPA BB: Industry

AICPA BB: Leveraging Technology AICPA FN: Decision Making AICPA FN: Leveraging Technology Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling. Topic: Statistical and Nonstatistical Sampling

82. Teal Corporation has 2,000 accounts receivable, with a total book value of $200,000. Ricardo Ramaro, CPA, has selected and audited a sample of 100 of the accounts with a combined book value of $10,100; the total of their audited values was $11,000. Using the mean-per-unit method, calculate the:

a. Accounts receivable estimated audited value. b. Projected misstatement.

a. The accounts receivable estimated audited value is calculated as:

b. The projected misstatement is calculated as the difference between the estimated total audited value and the book value, calculated as follows:

AACSB: Analytic AACSB: Technology AICPA BB: Industry

AICPA BB: Leveraging Technology AICPA FN: Leveraging Technology AICPA FN: Measurement Bloom's: Understand Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling. Topic: Classical Variables Sampling

83. The auditors are using mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 10,000 receivable accounts with a total book value of $800,000. The auditors estimate the population's standard deviation as being equal to $25. After examining the overall audit plan, the auditors believe that the account's tolerable misstatement is $40,000, and that a risk of incorrect rejection of .10 (risk coefficient = 1.64) and a risk of incorrect acceptance of .15 (risk coefficient = 1.04) should be used.

Required:

a. Calculate the required sample size.

Now ignore your sample size calculation in part "a," and assume that your answer was a sample size of 289 (the square root of 289 is 17) and that you obtained the following results: Average audited value of items in sample: $76

Average book value of items in sample: $78

Standard Deviation in the sample (audited values): $24 Standard Deviation in the sample (book values): $26

b. Using mean-per-unit sampling, calculate the projected misstatement for the population. c. Using mean-per-unit sampling, calculate the adjusted allowance for sampling risk and use it to form a statistical conclusion concerning the book value of the population ($800,000). That is, calculate an interval and either "accept" or "reject" the client's book value.

a. The required sample size is calculated by first calculating the allowance for sampling risk and then using it into the sample size formula as follows:

b. The projected misstatement is calculated by first calculating the estimated total audited value and then subtracting it from the book value as follows:

Estimated total audited value = (Mean of audited values) x (Number of accounts) Estimated total audited value = ($76) x (10,000 accounts) = $760,000

Projected misstatement = Estimated total audited value - Book value of population = $800,000 - $760,000

= $40,000 overstatement

Adjusted AR = $25,318

The acceptance interval is $760,000 $25,318. Accordingly, the population is rejected because its book value of $800,000 is outside the interval.

AACSB: Analytic AACSB: Technology AICPA BB: Industry

AICPA BB: Leveraging Technology AICPA FN: Leveraging Technology AICPA FN: Measurement Bloom's: Apply Difficulty: Hard

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling. Topic: Classical Variables Sampling