The Accounting Department Reports That the Balance of Accounts Receivable

question 6

Multiple Choice

The accounting department reports that the balance of accounts receivable is $210,000. You are willing to accept that balance if audit sampling suggests it is within $15,000 of the actual balance. Using a classical variables sampling plan, you compute a 95% confidence interval of $208,000 to $225,000. You would therefore:

• A)not be able to determine the acceptability of the receivable balance.
• B)accept the balance but with a lower level of confidence.
• C)take a larger sample before totally rejecting the balance and requiring adjustments.
• D)accept the $210,000 balance because the confidence interval is within the materiality limits.

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Definitions:

Heuristic Device

A mental shortcut or rule of thumb that simplifies decision making by allowing individuals to solve problems and make judgments quickly and efficiently.

Qualitative Research

A research methodology that focuses on understanding concepts, thoughts, or experiences through detailed observation, interviews, or analysis of textual or visual data.

Psychological Illness

A wide range of mental health conditions that affect mood, thinking, and behavior, including depression, anxiety disorders, schizophrenia, and others.

Investment Securities

Financial instruments such as stocks, bonds, or mutual funds that represent an investment and an ownership position or creditor relationship with a corporation or governmental entity.