Question 2. Small Town Steelsampling methods and projecting errors (4%) Small Town Steel is based in Molong, NSW, and produces a range of high-quality steel fabrication products including tubes, pipes, plates, fasteners, and fittings for the industrial, commercial, and residential sectors. Sales to the commercial sector have been steady but thanks to a mining and building boom, sales to the industrial and residential sectors have doubled in the past year. Property, plant, and equipment (PPE) is one of Small Town Steels most material balances. During her planning for the audit of PPE your Graduate, Kristin Jensen, notes a major investment in a new manufacturing process. This is supported by her preliminary analytical procedures which indicate an increase in acquisitions of PPE. As per her interim audit procedures, Kristin tested the appropriateness of the depreciation rates assigned to PPE, and whether it is consistent with the present condition and expected use of the assets over the remaining life. Kristin sampled 28 PPE items, with a total dollar value of $1,325,000. The results show that for the sample items some depreciation rates were too low and/or the remaining useful life of the equipment was overstated by management. Together these issues produce an error in the sample of $63,500. Small Town Steel has a profit before tax for the current year of $1,673,000 and a PPE balance at the end of the year of $10,325,000.

Required

Discuss with Kristin the:

1) appropriate method of sampling PPE for the planned tests of depreciation and population definition.

2) assertion(s) most at risk.

3) expected conclusion about the assertion(s) at risk with evidence to support that conclusion