Question

One method of selecting specific items from a population when testing for overstatement is to _______.

1) select items that are over a certain dollar amount
2) select items that are identical dollar amounts
3) allow the internal auditors to select them
4) allow management to select them

Answer 1

One method of selecting specific items from a population when testing for overstatement is to select items that are over a certain dollar amount, known as monetary-unit sampling. Option 1) is correct.

Step-by-step explanation:

One method of selecting specific items from a population when testing for overstatement is to select items that are over a certain dollar amount. This approach is known as monetary-unit sampling or dollar-unit sampling and is often utilized in audit procedures to focus on larger transactions which are more likely to contain material misstatements.

It should be noted that allowing either internal auditors or management to select specific items can introduce bias and would not be appropriate for an independent test for overstatement. Selecting items that are identical dollar amounts is not typically a method used for testing for overstatement, as it does not necessarily target the items with the highest risk.