Question

The auditors wish to test the valuation of accounts receivable in the audit of Desert Enterprises of Bullhead City. The client has $500,000 of total recorded receivables, composed of 850 accounts. The auditors have determined the following:
Tolerable misstatement $25,000
Risk of incorrect acceptance 5%
Expected misstatement $ 2,000
The auditors have decided to use probability-proportional-to-size sampling.
a. For planning the sample, calculate:
(1) Required sample size.
(2) Sampling interval.
b. Assume that the auditors have tested the sample and discovered three misstatements:
Book Value .... Audited Value
$ 50 ......... $ 47
800 ......... 760
8,500 ......... 8,100
(1) Projected misstatement.
(2) Basic precision.
(3) Incremental allowance.
(4) Upper limit on misstatement.
c. Explain how the auditors would consider the results calculated in (b).
d. Use ACL to calculate the required sample size and sampling interval.
e. Assume the auditors have tested the sample and discovered five misstatements:
Book Value .. Audited Value
$ 50 ......... $ 47
300 ......... 325
800 ......... 760
912 ......... 867
8,500 ......... 8,100
Use ACL to calculate PPS results.




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  • CreatedOctober 25, 2014
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