An Auditor Established a $60,000 Tolerable Misstatement for an Asset

question 680

Multiple Choice

An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that:

• A) There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.
• B) There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements.
• C) The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.
• D) The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.

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Definitions:

Predictors

Factors that can be used to forecast the likelihood of a future event or outcome, often based on statistical analysis.

Self-Efficacy Theory

A theory that focuses on the belief in one's capabilities to organize and execute the courses of action required to manage prospective situations.

Health Behaviors

Actions taken by individuals that affect health positively or negatively, like exercise or smoking.

Predictive

Relating to the ability to make predictions about future events or outcomes based on current or past data.