ExpertHard1 markMultiple Choice
CPA · Question 17 · Area III: Performing Procedures
An auditor uses probability-proportional-to-size (PPS) sampling to select a sample of accounts receivable for confirmation. A customer account with a recorded balance of $10,000 was selected. The audit value was determined to be $8,000. The sampling interval is $50,000. What is the projected misstatement for this item?
An auditor uses probability-proportional-to-size (PPS) sampling to select a sample of accounts receivable for confirmation. A customer account with a recorded balance of $10,000 was selected. The audit value was determined to be $8,000. The sampling interval is $50,000. What is the projected misstatement for this item?
Answer options:
A.
$10,000
B.
$2,000
C.
$10,000
D.
$4,000
How to approach this question
PPS Logic: 1. Calculate Tainting % (Error / Book Value). 2. Multiply Tainting % by Sampling Interval. (Note: If Book Value > Interval, the actual error is used, no projection). Here, 10k < 50k, so project.
Full Answer
C.$10,000✓ Correct
C
1. Calculate Tainting Percentage: (Recorded Amount - Audit Amount) / Recorded Amount = ($10,000 - $8,000) / $10,000 = 0.20 (20%).<br/>2. Calculate Projected Misstatement: Tainting Percentage × Sampling Interval = 0.20 × $50,000 = $10,000.
Common mistakes
Using the actual error ($2,000) without projecting it to the interval.
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