The results of substantive testing of sales invoices at Radiator Enterprises are as follows:

The three strata correspond to different departments and the overall tolerable error is set at $60 000.

Required

(a) Project the errors for each stratum and calculate the total projected error. Is the projected error material? What difference would it make if the tolerable error was set at $70 000 or $50 000? Explain.

(b) Discuss the implications for the substantive testing if it was discovered that for three months of the financial year the permanent staff member in the department corresponding to stratum 3 was on long service leave.

Transcribed Image Text:

Stratum Error found Sample total value Stratum total value Projected error $12.900 $ 94 260 $126 465 $ 83 980 $304 705 1 2 3 Total $ 9915 $ 6570 $29 385 $243 420 $160 825 $153 660 $557 905