While Performing an Audit of Accounts Payable,Clayton,CPA,is Using Variables Sampling

question 28

Multiple Choice

While performing an audit of accounts payable,Clayton,CPA,is using variables sampling to determine the audited value of the account based on selected purchase orders.Which of the following options is most likely to reduce the necessary sample size?

• A)A decrease in the level of tolerable misstatement.
• B)An increase in the expected level of misstatement.
• C)An increase in the variability of the size of accounts payable transactions.
• D)An increase in the necessary risk of incorrect acceptance.

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Definitions:

Treynor-Black Model

A special case of the Markowitz model of efficient diversification, derived by assuming returns are generated by the index model.

Residual Variance

The variance of the error terms in a regression model, representing the amount of variation that cannot be explained by the model's inputs.

Alpha/Beta

Measures in finance; Alpha represents the strategy's returns above the benchmark, whereas Beta indicates the volatility relative to the market.

Sharpe Measure

A measure of the excess return (or risk premium) per unit of risk in an investment asset or a trading strategy, calculated as the difference between the asset's returns and the risk-free rate, divided by the asset's standard deviation.