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

question 5

Multiple Choice

An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population of 1,000 items 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:

X-Ray Tube

A device used in X-ray machines to produce X-rays by directing high voltage electrons at a target material.

Electromagnetic Radiation

Energy that spreads out as it travels through space, exhibited in forms such as radio waves, light, and x-rays.

Distends

Becomes inflated, stretches out.

Inflated

Increased or exaggerated beyond reasonable or normal limits, often referring to prices, ego, or statistics.