Question content area top

Part $1$

In using difference$$ estimation, an auditor took a random sample of $100$ inventory items from a large population to test for proper pricing. Several of the inventory items were$$ misstated, but the combined net amount of the sample misstatement was not material. In$$ addition, a review of the individual misstatements indicated that no misstatement was by itself material. As a$$ result, the auditor did not investigate the misstatements or make a statistical evaluation. Explain why this practice is improper.

Question content area bottom

Part $1$

A$.$

No determination was made as to whether a random sample of $100$ inventory items would be sufficient to generate an acceptable precision interval for a given confidence level. In$$ fact, a confidence limit was not even calculated.

B$.$

Although no misstatement by itself may be$$ material, other material misstatements might not have exhibited themselves if too small of a sample was taken.

C$.$

Regardless of the size of individual or net amounts of misstatements in a$$ sample, the effect on the overall population cannot be determined unless the results are evaluated using a statistically valid method.

D$.$

The combined net amount of the sample misstatement may be immaterial because large overstatement amounts may be offsetting large understatement amounts resulting in a relatively small combined net amount.

E$.$

A and C only.

F$.$

All of the above.