EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
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Question
Chapter 17, Problem 27DQP
a.
To determine
Compute the upper misstatement bound on the basis of the client misstatements in the sample.
b.
To determine
Explain whether the population acceptable as stated, explain about other options are available to the auditor at this point and identify the option that the auditor must be selected.
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Carson Allister is performing a PPS application in the audit of Bird Company’s accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a sample size of 75 items and a sampling interval of $25,000. After examining the sample items, the following misstatements were identified:
(Use Exhibit F.A.2.)
Item
Recorded Balance
Audited Value
1
$35,000
$28,000
2
10,000
8,000
3
6,000
3,000
Required:
Calculate the upper limit on misstatements for Bird Company’s accounts receivable.
Upper Limit on Misstatements Calculation: Monetary Unit Sampling. The auditorsmailed positive confirmations on 60 customers’ accounts receivable balances. The company’saccounts receivable balance comprised 2,356 customer accounts with a total recorded balanceof $19,600,000, and the sampling interval was $280,000. The auditors received four positiveconfirmation returns reporting exceptions. Upon follow-up, they found the following:∙ Account 2333. Recorded balance $8,345. The account was overstated by $1,669 becausethe client made an arithmetic mistake recording a credit memo. The company issued only86 credit memos during the year. The auditors examined all of them for the same arithmetic mistake and found no similar misstatements.∙ Account 363. Recorded balance $7,460. The account was overstated by $1,865 because thecompany sold merchandise to a customer with payment due in six months plus 15 percentinterest. The billing clerk made a mistake and recorded the sales price and the…
McMullen and Milligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. Jim Sigmund, senior-in-charge of th audit, plans to use MUS to audit Cusick's invenotry account. Thee balance at December 31 was $9,000,000.
Required:
A) Based on the following information, compute the required MUS sample size:
Tolerable misstatement = $360,000
Expected misstatement = $90,000
Risk of incorrect acceptance = 5%
B) Nancy Van Pelt, staff accountant, used the sample items selected in part (a) and performed the audit procedures listed in the inventory audit program. She notes the following misstatements:
Misstatement Number Book Value Audit Value
1 $10,000 $7,500
2 $9,000 $6,000
3 $60,000 0…
Chapter 17 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
Ch. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - Prob. 10RQ
Ch. 17 - Prob. 11RQCh. 17 - Prob. 12RQCh. 17 - Prob. 13RQCh. 17 - Prob. 14RQCh. 17 - Prob. 15RQCh. 17 - Prob. 16RQCh. 17 - Prob. 17RQCh. 17 - Prob. 18RQCh. 17 - Prob. 19.1MCQCh. 17 - Prob. 19.3MCQCh. 17 - Prob. 19.2MCQCh. 17 - Prob. 20.1MCQCh. 17 - Prob. 20.2MCQCh. 17 - Prob. 20.3MCQCh. 17 - Prob. 21.1MCQCh. 17 - Prob. 21.3MCQCh. 17 - Prob. 21.2MCQCh. 17 - Prob. 22.1MCQCh. 17 - Prob. 22.2MCQCh. 17 - Prob. 22.3MCQCh. 17 - Prob. 23DQPCh. 17 - Prob. 24DQPCh. 17 - Prob. 25DQPCh. 17 - Prob. 26DQPCh. 17 - Prob. 27DQPCh. 17 - Prob. 28DQPCh. 17 - Prob. 29DQPCh. 17 - Prob. 30DQPCh. 17 - Prob. 31CCh. 17 - Prob. 32C
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