ExpertHard1 markMultiple Choice
CPA · Question 39 · Area III: Performing Procedures
An auditor is performing a statistical sample of inventory counts. The recorded book value of the population is $1,000,000. The auditor selects a sample with a book value of $100,000. The audit value of the sample is $98,000. Using ratio estimation, what is the projected misstatement for the population?
An auditor is performing a statistical sample of inventory counts. The recorded book value of the population is $1,000,000. The auditor selects a sample with a book value of $100,000. The audit value of the sample is $98,000. Using ratio estimation, what is the projected misstatement for the population?
Answer options:
A.
$2,000
B.
$20,000
C.
$10,000
D.
$200,000
How to approach this question
Ratio Estimation: (Sample Error / Sample Book) * Population Book = Projected Error.
Full Answer
B.$20,000✓ Correct
B
The ratio of misstatement in the sample is ($100,000 - $98,000) / $100,000 = 2%. Applying this ratio to the population: $1,000,000 * 2% = $20,000 projected misstatement.
Common mistakes
Using Difference Estimation (Average error per item) instead of Ratio Estimation.
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