Jack and Jill, Two Auditors Who Have Separate Accounting Practices

question 28

Essay

Jack and Jill, two auditors who have separate accounting practices, have independently assessed the risks associated with the accounts receivable of their respective clients.The appropriate audit risk for both is determined to be .02.Both agree that inherent risk should be set at the maximum (1.0) and that no analytical procedures will be performed.Jack evaluates control risk as moderate (.40) while Jill assesses it as relatively low (.20).Using the audit risk model, answer the following questions.
Required:
A) What is the risk of incorrect acceptance for Jack and for Jill?
B) Based on your answer in part a, which auditor will have to collect the most evidence? Explain your reasoning.
C) What effect does differing assessments of control risk have on the sample size of accounts receivable? Explain.

• A) What is the risk of incorrect acceptance for Jack and for Jill?
• B) Based on your answer in part a, which auditor will have to collect the most evidence? Explain your reasoning.
• C) What effect does differing assessments of control risk have on the sample size of accounts receivable? Explain.

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Definitions:

Lean Manufacturers

Companies that adopt lean manufacturing techniques to maximize customer value while minimizing waste, thus achieving higher efficiency in production.

Traditional Processes

Conventional methods and procedures that organizations follow to conduct business operations, often characterized by a linear, step-by-step approach.

Work in Process Inventory

Items that are in the middle of production but haven't been finished for market yet.

Cost of Goods Sold

The expense associated with manufacturing the goods that a business sells during a specific period.