# An auditor is using difference estimation for the confirmation of accounts receivable in the audit of Lafferty

## Question:

An auditor is using difference estimation for the confirmation of accounts receivable in the audit of Lafferty Hardware Supply. A random sample of 100 positive confirmations has been sent to customers. Second requests have been mailed to all no-responses. Alternate procedures have been done for all confirmations not received.

After all responses have been received and alternate procedures performed, follow-up procedures are used to determine the value of each error in the sample. Difference estimation is then used to calculate the confidence interval.

Required :

**a.** Why is difference estimation apt to be a better statistical method than attributes in this situation ?

**b.** Define what is meant by a nonsampling error. Why might nonsampling errors be a serious problem in the circumstances described in the case?

**c.** Evaluate the following statement: “The calculation of the confidence interval for hypothesis testing and interval estimation is identical. The difference between the two methods is the use of the results.”

**d.** Describe how the auditor would use the calculated confidence interval for a hypothesis test.

**e.** Explain the circumstances in which an adjusting journal entry would be necessary and appropriate when a hypothesis test has been used.

**f.** Under what circumstances would unstratified difference estimation be an appropriate statistical method for the confirmation of accounts receivable ?

## Step by Step Answer:

**Related Book For**

## Applications Of Statistical Sampling To Auditing

**ISBN:** 9780130391568

1st Edition

**Authors:** Alvin A. Arens, James K. Loebbecke