Marley Brown is planning the substantive procedures for the audit of Longhorn Company’s inventory, which had a recorded (unaudited) balance of $ 6,500,000. In prior audits, Brown used monetary unit sampling but is now considering the use of non-statistical sampling. Brown has established a tolerable misstatement of $ 250,000 and a sample size of 71 items.
a. Compared to monetary unit sampling, what are the advantages and disadvantages to Brown’s using nonstatistical sampling in this year’s audit of Longhorn’s inventory?
b. Compare the factors used by Brown in determining sample size under monetary unit sampling to those that would be used in nonstatistical sampling.
c. Brown is considering increasing the use of analytical procedures in order to reduce the tests of details of the inventory. What factors would she consider in deciding whether to perform more extensive analytical procedures?
d. If the items selected by Brown had an aggregate audited balance of $ 970,000 and an aggregate recorded balance of $ 1,000,000, what would be the conclusion with respect to the fairness of Longhorn’s inventory?