REVIEW QUESTIONS AND EXERCISES

Questions

1. When auditing account balances, why is an incorrect acceptance decision considered

more serious than an incorrect rejection decision?

2. What are two methods of projecting the known misstatement to the population?

3. What kind of evidence evaluation consideration should an auditor give to the peso
amount of a population unit that cannot be audited?

4. What audit purpose is served by stratifying an account balance population and by

removing some units from the population for 100 percent audit attention?

5. What should be the relationship between tolerable misstatement in the audit of an

account balance and the amount of monetary misstatement considered material to the
overall financial statements?

6. What general set of audit objectives can you use as a frame of reference to be
specific about the particular objectives for the audit of an account balance?

7. What is the influence on peso-value variables sample sizes of the risk of incorrect
acceptance, the risk of incorrect rejection, the tolerable misstatement, the population
variability and the population size?

8. What are the three basic steps in quantitative evaluation of monetary amount
evidence when auditing an account balance?

9. The projected likely misstatement may be calculated, yet further misstatement might
remain undetected in the population. How can auditors take the further misstatement
under consideration when. completing the quantitative evaluation of monetary
evidence?

10. What additional considerations are in order when auditors plan to audit account
balances at an interim date several weeks or months before the client's fiscal
ar-end-date?

11. Differentiate between classical variables sampling and probability proportional to

size sampling.