Maria Lee, an Auditor, Uses Statistical Sampling to Test Control

question 65

Multiple Choice

Maria Lee, an auditor, uses statistical sampling to test control procedures. Why does Lee use this statistical sampling technique?

• A) It reduces the use of judgment required by Lee because there are established numerical criteria for this type of testing.
• B) It provides a means of measuring the sampling risk that results from examining only a part of the data.
• C) It is specified by auditing standards.
• D) It increases Lees' knowledge of the client's prescribed procedures and their limitations.

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Definitions:

Reported Income

The income that a company officially reports on its income statement, which has been calculated according to the applicable accounting standards.

FIFO Method

The First-In, First-Out accounting method, where the first items added to inventory are the first ones to be sold or used.

Inventory Valuation

The method used to price inventory items on the balance sheet, impacting cost of goods sold and financial results.

Absorption Costing

Absorption costing is an accounting method that includes all the direct costs and overheads associated with producing a particular product in its cost base.