ExpertHard1 markMultiple Choice
CPA · Question 22 · Area III: Procedures
In a probability-proportional-to-size (PPS) sampling application, the sampling interval is determined to be $10,000. An account with a recorded amount of $50,000 is selected. The auditor finds a misstatement of $500 in this account. What is the projected misstatement for this item?
In a probability-proportional-to-size (PPS) sampling application, the sampling interval is determined to be $10,000. An account with a recorded amount of $50,000 is selected. The auditor finds a misstatement of $500 in this account. What is the projected misstatement for this item?
Answer options:
A.
$100.
B.
$500.
C.
$2,500.
D.
$10,000.
How to approach this question
PPS Rule: If Recorded Amount >= Sampling Interval, the item is individually significant. Projected Error = Actual Error. No tainting factor is used.
Full Answer
B.$500.✓ Correct
$500.
In PPS sampling, if the logical unit's recorded amount ($50,000) exceeds the sampling interval ($10,000), the item is fully selected (it effectively contains 5 intervals). Therefore, the projected misstatement is simply the actual misstatement found ($500). Tainting percentages are only used when the recorded amount is less than the interval.
Common mistakes
Applying a tainting percentage (1%) to the interval ($10,000) to get $100.
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