Exam 22: Probability-Proportion-To-Size Sampling

For which of the following populations would probability-proportional-to-size sampling be most likely to be the most efficient technique in confirming accounts receivable?

Williams,CPA intends to use probability-proportional-to-size sampling.He has properly selected and audited a sample of 100 accounts receivable from his client's population of 3000 accounts.He calculated a sampling interval of $5,000 and the tolerable misstatement for the account is $40,000.He has the following table available: Williams also recalls that "basic precision" is equal to the appropriate reliability factor multiplied times the sampling interval.He wishes to accept a risk of incorrect acceptance of 10 percent. He found that 97 of the 100 accounts in the sample were properly calculated.However,the following three errors existed: Book Value Audited Value \ 50 \ 49 400 300 8,000 6,000 a.Calculate the projected misstatement. b.Calculate the basic precision. c.Calculate the incremental allowance. d.Calculate the upper limit on misstatement. e.Explain how the auditors would consider the results calculated above.

Which statement is most proper for evaluating the results of this PPS sample?

The upper limit on misstatement in a probability-proportional-to-size sample plan consists of the total of the projected misstatement and the tolerable misstatement.

When no misstatements are identified in a PPS sample,the upper limit on misstatement equals.

Which of the following statements is correct concerning probability-proportional-to-size sampling?

In a PPS sample,the most likely misstatement in the population is equal to the:

When using probability-proportional-to-size sampling,the actual total misstatement in a population is most likely to be closest to the:

Increasing the expected misstatement for a probability-proportional-to-size sample increases the required sample size.

In a probability-proportional-to-size sample with a sampling interval of $10,000,an auditor discovered that a selected account receivable with a recorded amount of $5000 had an audited amount of $4,000.If this were the only misstatement discovered by the auditor,the projected misstatement of this sample would be:

Assume the following relating to a PPS sample: • Projected Misstatement = $20,000. • Basic Precision = $16,000. • Incremental Allowance = $4,500. • Tolerable Misstatement = $34,000. The allowance for sampling risk is equal to:

A normally distributed sample is assumed when using probability-proportional-to-size sampling.

The auditors of Smith Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 5 percent.They believe that inherent risk is 100%,there is a 40 percent risk that material misstatement could have bypassed the client's system of internal control,and a 50 percent risk that any existing material misstatement would not have been brought to light by the auditors' analytical procedures.What is the maximum risk of incorrect acceptance the auditors should specify in their substantive tests of details of accounts receivable?

Assume the following relating to a PPS sample: • Projected Misstatement = $20,000. • Basic Precision = $16,000. • Incremental Allowance = $4,500. • Tolerable Misstatement = $34,000. The most likely amount of misstatement in the population is equal to:

An increase in the scope of analytical procedures may result in a lower allowable risk of incorrect acceptance for a substantive test of details.

Which statement is correct with respect to the probability-proportional-to-size technique?

When using probability-proportional-to-size sampling,the allowance for sampling risk is the combination of basic precision and the:

The use of probability-proportional-to-size sampling would be least likely to be efficient if:

Assume the following relating to a PPS sample: • Projected Misstatement = $20,000. • Basic Precision = $16,000. • Incremental Allowance = $4,500. • Tolerable Misstatement = $34,000. The upper limit on misstatement equals.

In a probability-proportional-to-size sample with a sampling interval of $10,000,an auditor discovered that as selected account receivable with a recorded amount of $12,000 had an audited amount of $9,000.If this were the only misstatement discovered by the auditor,the projected misstatement of this sample would be: