In a statistical sampling application for substantive testing (Variables Sampling), the auditor calculates a point estimate of the population misstatement. If the point estimate plus the allowance for sampling risk exceeds the tolerable misstatement, the auditor should:

Answer options:

Accept the book value as fairly stated.

Conclude that the account balance is materially misstated.

Decrease the sample size.

Request management to book the point estimate as an adjustment.

How to approach this question

Sampling Logic: Upper Limit (Estimate + Allowance) > Tolerable = Reject.

Full Answer

B.Conclude that the account balance is materially misstated.✓ Correct

Conclude that the account balance is materially misstated.

If the upper limit of the misstatement (Point Estimate + Allowance) exceeds Tolerable Misstatement, there is an unacceptably high risk that the balance is materially misstated. The auditor cannot accept the account as fairly stated.

Common mistakes

Accepting the account because the Point Estimate alone might be below Tolerable (ignoring the allowance/margin of error).

Question 52 All questions Question 54

Practice the full CPA AUD Practice Exam 5

78 questions · hints · full answers · grading

More questions from this exam

Q01A CPA firm is auditing the financial statements of a nonissuer, TechInnovate Inc. The lead engage...Hard Q02During the audit of an issuer, Gamma Corp, the audit firm proposes to provide tax services to the...Hard Q03An auditor is performing a Yellow Book audit (GAO Government Auditing Standards) for a state agen...Hard Q04A CPA is engaged to audit the financial statements of a nonissuer. During the audit, the CPA enco...Hard Q05Before accepting an audit engagement for a new nonissuer client, the successor auditor is require...Hard

View all 78 questions →