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Chapter 6 In Class Questions_solutions.pdf

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University of Alberta
Trish Stringer

In Class #6.1 - Sample selection in practice Rahim, a first-year auditor, is asked to select a sample of invoices to audit the utility expense account. Below is the account detail. The audit program asks to select a sample of four items. Month Balance January 15,245 February 12,973 March 11,359 April 9,326 May 6,380 June 4,558 July 2,901 August 2,837 September 3,690 October 5,890 November 9,823 December 14,906 Required 1: Using a random number generator in Excel, determine which months will be selected. Using a random number generator in Excel or on your calculator, any number between 1-12 may be selected. This corresponds to the appropriatemonth. For example, if the random number generator produces the following items 5, 12, 6, and 4 – then May, December, June, and April will be tested. Required 2: Using systematic selection, determine which four months will be selected. Systematic selection — 12 months ÷ 4 months required in sample = 3. Thus, pick every third month. Assuming the sample started at month number 1 (January), th e systematic sample months selected would be January, March, June, September, December. Required 3: Using haphazard selection, determine which four months will be selected. Haphazard selection — Pick any 4 months. Required 4: Using block selection, determine which four months will be selected. Block selection — Pick any star ting point within the sample, an d then pick four consecutive months. In Class #6.2 - Sampling methods and risk & Projecting Errors Fabrication Holdings Ltd. (FH) has been a client of KFP Partners for many years. You are an audit senior and have been assigned to the FH audit for the first time for the fiscal year ended December 31, 2012. You are completing the audit planning for the property, plant, and equipment (PPE) account class, which is one of FH's most material balances. You are also aware that FH has made a large investment in a new manufacturing process to place itself in a more competitive position. Your analytical procedures indicate an increase in acquisitions of PPE. Required 1: Discuss the appropriate method of sampling PPE for the planned tests of depreciation. Define the population. What assertions are most at risk? Sampling PPE for the tests of depreciation expense should reflect the changed conditions and the materiality of PPE to the balance sheet. The changed conditions relate to the large investment in a new manufacturing process and the associated increases in PPE acquisitions. The sampled items should include new acquisitions of PPE (because these have not been tested before for depreciation), plus the larger items (because the depreciation expense would likely be higher for these items). The population for the tests of depreciation expense is the depreciable items included in PPE. This includes both new items and existing items. The auditor should ensure that disposals are removed from the asset register before the s
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