Question

Data relative to three MPU estimation plans are presented below. 1 2 3 Tolerable misstatement $110,000 $140,000 $170,000 Size of population 5,000 6,000 8,000 Risk of incorrect rejection 10% 5% 10% Estimated population standard deviation $80 $105 $125 Risks that misstatements accumulating to greater than tolerable misstatements will not be detected by: Internal control 50% 40% 40% Other substantive procedures (excluding this test of details) 25% 50% 85% Desired overall audit risk 5% 5% 5% Inherent risk 100% 100% 100%

Answer 1

The data provided relates to three MPU (Monetary Unit Sampling) estimation plans. Each plan involves different tolerable misstatement amounts, population sizes, risk levels, estimated population standard deviations, and the risks associated with internal control and other substantive procedures.

For Plan 1:
- Tolerable misstatement: $110,000
- Size of population: 5,000
- Risk of incorrect rejection: 10%
- Estimated population standard deviation: $80
- Risk of misstatements not detected by internal control: 50%
- Risk of misstatements not detected by other substantive procedures: 25%
- Desired overall audit risk: 5%
- Inherent risk: 100%

For Plan 2:
- Tolerable misstatement: $140,000
- Size of population: 6,000
- Risk of incorrect rejection: 5%
- Estimated population standard deviation: $105
- Risk of misstatements not detected by internal control: 40%
- Risk of misstatements not detected by other substantive procedures: 50%
- Desired overall audit risk: 5%
- Inherent risk: 100%

For Plan 3:
- Tolerable misstatement: $170,000
- Size of population: 8,000
- Risk of incorrect rejection: 10%
- Estimated population standard deviation: $125
- Risk of misstatements not detected by internal control: 40%
- Risk of misstatements not detected by other substantive procedures: 85%
- Desired overall audit risk: 5%
- Inherent risk: 100%

Each plan aims to achieve an overall audit risk of 5%, considering inherent risk, desired audit risk, and the risks associated with both internal control and other substantive procedures. The specific parameters for each plan vary based on the nature of the audit engagement and the characteristics of the population being examined.

Answer 2

Step-by-step explanation:

The data provided presents information about three MPU estimation plans. Let's break down the information step by step:

1. Tolerable misstatement: This refers to the maximum amount of misstatement that the auditor finds acceptable. It is the threshold beyond which misstatements would be considered significant. The data shows the tolerable misstatement for each plan: $110,000 for Plan 1, $140,000 for Plan 2, and $170,000 for Plan 3.

2. Size of population: This represents the total number of items in the population that the auditor is examining. The data shows the population sizes for each plan: 5,000 for Plan 1, 6,000 for Plan 2, and 8,000 for Plan 3.

3. Risk of incorrect rejection: This indicates the risk that the auditor might wrongly reject an item as misstated, leading to unnecessary additional audit procedures. The data shows a 10% risk of incorrect rejection for Plan 1, 5% for Plan 2, and 10% for Plan 3.

4. Estimated population standard deviation: This represents the expected variability or dispersion of the values in the population. The data shows the estimated population standard deviation for each plan: $80 for Plan 1, $105 for Plan 2, and $125 for Plan 3.

5. Risks of misstatements not being detected: These figures show the risks that misstatements adding up to an amount greater than the tolerable misstatement will not be detected. The data distinguishes between risks associated with internal controls and risks associated with other substantive procedures. For Plan 1, the risk that misstatements will not be detected by internal controls is 50%, and the risk associated with other substantive procedures is 25%. For Plan 2, the corresponding figures are 40% and 50%, and for Plan 3, they are 40% and 85%.

6. Desired overall audit risk: This represents the level of risk that the auditor is willing to accept for the audit as a whole. The data indicates a desired overall audit risk of 5% for all three plans.

7. Inherent risk: This refers to the susceptibility of the financial statements to misstatement, regardless of controls in place. The data shows an inherent risk of 100% for all three plans.

To summarize, the data provides information about the tolerable misstatement, population size, risk of incorrect rejection, estimated population standard deviation, risks of misstatements not being detected, desired overall audit risk, and inherent risk for each of the three MPU estimation plans.