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Hello
The textbook says the following statement is TRUE:
“The sample slection does not address the risk of understatement as it has focused on the ten largest balances.”
So does that mean other methods of sampling would address the risk of understatement better?
Thank you!
Any sample selection method that “focuses” on largest account balances is inevitably biased towards overstatement.
If testing for understatement (e.g. accounts payable), a sample should be selected from a “reciprocal population” of transactions (e.g. purchases).
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