An internal auditor found that the cost of some material installed on capital projects had been transferred to the inventory account because the capital budget had been exceeded. Which of the following would be an appropriate technique for the auditor to use to determine the extent of the problem?
To determine the extent of the problem, which involves identifying all occurrences where the cost of installed material was improperly transferred from capital to inventory, reviewing all journal entries that transferred costs from capital to inventory accounts would be the appropriate technique. This is because it allows the auditor to comprehensively identify every instance of the issue, ensuring a complete and accurate assessment of the problem's extent, rather than relying on potentially incomplete sampling methods.
why would you review all transactions and not a sample ? reviewing all transactions is not efficient
Given that it is a suspected (or most likely) fradualent act, the assumption is that there might not be a lot of these entries. And secondly this is not a normal accounting entry, therefore there is no point of sampling as finding even one item is a proof of fraud. At that point it the matter of finding out if all such transactions equal the discrepency noted in the beginning.
The question is wants "an appropriate technique for the auditor to use to determine the extent of the problem" the key words is extent, you cannot determine the extent by sampling, in other words they want the whole amount moved to inventory