Population size $ 2,000,000
Tolerable misstatement $ 100,000
Sample Respond
1 b. To record an adjustment for the actual misstatement
2 c. Expand sample size
3 d. Request client to fix the population
e. Treat the misstatement as an anormaly that is an isolated
4
occurrence that should not be projected to the population
5 a. Acept the population as fairly stated
6 c. Expand sample size
Comment
The upper bound will be less than tolerable
misstatement
after recording an adjustment for $20,000
Expanding the sample will lower sampling risk,
which may allow the auditor to accept the sample.
The large number of errors and large projected
misstatement suggests it would be preferable
to have the client fix the population.
The single error related to a currency adjustment.
If the auditor performs tests to verify the cause of the
error and that it was unique, then the error would not
be projected to the population and the population
would be acceptable.
The upper bound, which includes an allowance
for sampling risk, is less than tolerable misstatement.
Expanding the sample will lower sampling risk,
which may allow the auditor to accept the sample.
Percentage
Recorded Factual Sampling Projected
Audit amount of
amount misstatement interval mistatement
(B) misstatement
(A) (C = B - A) (E) (F)
(D = C/A)
987.12 887.12 100 10.1% 50000 5065
Add basic precision
( The upper misstatement
when no misstatements
are found)
Upper misstatement bound
Projected
Incremental misstatement
change plus
in Confidence incremetal
factor allowance for
(G) sampling risk
(H = F*G)
1.58 8003
115500
123503
ARIA
Tolerable misstatement
b. Calculate the sample size for all three account
Sample size
Sample size
Confidence factor (10% ARIA , no expected misstatements)
Tolerable misstatement as percentage of population
($100,000/$10,000,000)
c. Calculate the sample size for each of the three account
d. The population would be arranged so that all accounts receivable would be first, followed
by inventory and marketable securities. The items would be identified by the cumulative
totals. In the example, the number 4,627,871 would relate to an inventory item since it is
between the cumulative totals of $3,600,000 and $8,400,000. Accordingly, for this number the
inventory audit procedures would be performed.
e. Calculate the misstatement bounds for three combined account
10%
100000
Confidence factor
Tolerable misstatement as percentage of population value
231
Question 1
MUS applied
Confidence factor 3
Tolerable misstatement $ 200,000
Initial sample size Confidence factor
Tolerable misstatement as percentage of population value
Initial sample size 73
Question 2
Sample size Explanation
Column A < Column B Decrease in ARO
Column A > Column C Increase in (TER - EPER)
Question 3
Population value $ 1,750,000
Tolerable misstatement $ 75,000
Sample size 55
Actual and projected misstatement $ 23,000
Upper misstatement bound $ 97,870
(a) The population is not accepted because upper misstatement bound($97,870) is greater than tolerable misstatement( $75,000)
(b) To record an adjustment for the actual misstatement
Question 4
Control activities applied: Independent check on performance
Relevant related-transaction audit objective: Posting and summarization
Design test of control: Examine evidence that account receivale master file is reconciled to the general ledger
Question 5
Audit procedure Type of evidence Type of test
1 Inquiries of client TOB
2 Observation TOC
3 Inspection TOC
4 Inspection TOB
of population value
isstatement( $75,000)
Objectives
Cut off
Posting and summarization
Occurrence
Cut off
Question 1
Tolerable misstatement rate
EPER
(Estimated population exception rate)
ARO
Attribute sampling applied ( Based on table 15-8)
Question 2
Sample size
Column A > Column B
Column A > Column C
Question 3
Population recorded value
Tolerable misstatement
Upper misstatement bound
(a) The population is not accepted because the upper m
(b) Expand the sample size
Question 4
(a) Control activities applied: Proper authorization, In
Transaction -related audit objective: Occurrence
(b) Test of control: Examine customer order for evide
Question 5
Audit procedure
1
2
3
4
7%
2.25%
5%
lied ( Based on table 15-8) 88
Explanation
Increase in (TER-EPER)
Decrease in ARO, Decrease in TER
$ 1,750,000
$ 80,000
$ 80,940
accepted because the upper misstatement bound ($80,940) is greater than tolerable misstatement ($80,0000)
plied: Proper authorization, Independent check on performance
dit objective: Occurrence
mine customer order for evidence of credit approval
Type of evidence Type of test Objectives
Reperformance TOB Detail tie-in
Inspection TOC Completeness
Inspection STOT Timing
Analytical procedure AP Net realizable value
