ACP AUDITING - RISK BASED APPROACH
10th Edition
ISBN: 9780357195079
Author: JOHNSTONE
Publisher: CENGAGE C
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Chapter 8, Problem 58RSCQ
a.
To determine
To calculate:
b.
To determine
To calculate: Total estimated misstatements.
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Assume that you are auditing the inventory of Husky Manufacturing Company for the year ended December 31, 2015, and you are using MUS. The book value is $8,124,998.66. The risk of incorrect acceptance is 10% (90% confidence level). The tolerable misstatement is $275,000, and expected misstatement is $80,000, so the ratio of expected misstatement to tolerable misstatement is 29%. The ratio of tolerable misstatement to the population book value is 4.3%.
Calculate the sample size and the sampling interval.
Calculate the total estimated misstatement assuming the following misstatements were found in the sample:
Book value
Audit value
$41,906.45
$36,906.45
$335,643.28
$333,643.28
What conclusion do you reach based upon your calculation?
You are evaluating audit results for current assets for your audit client Pepper Ltd.
You take a random sample of inventory items worth $10,000 for price test and detect $1,000 worth of overstatements. The total carrying value of inventory is $100,000 and sampling error is $2,000. What is the total estimated misstatement for inventory account?
An audit firm is conducting the audit of Diaz Construction Company for the fiscal year ended October 31. Rebecca Smith, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Diaz’s inventory account. The balance in the inventory at October 31 was $4,250,000. Rebecca has established the following: risk of incorrect acceptance = 5% (i.e., the desired confidence level of 95%), tolerable misstatement = $212,500, and expected misstatement = $63,750. Calculate the sample size and sampling interval using Table 8-5 in the textbook (round your interval answer to the nearest whole number).
Chapter 8 Solutions
ACP AUDITING - RISK BASED APPROACH
Ch. 8 - Prob. 1TFQCh. 8 - Prob. 2TFQCh. 8 - Prob. 3TFQCh. 8 - Prob. 4TFQCh. 8 - Prob. 5TFQCh. 8 - Prob. 6TFQCh. 8 - Prob. 7TFQCh. 8 - Prob. 8TFQCh. 8 - Prob. 9TFQCh. 8 - Prob. 10TFQ
Ch. 8 - Prob. 11TFQCh. 8 - Prob. 12TFQCh. 8 - Prob. 13TFQCh. 8 - Prob. 14TFQCh. 8 - Prob. 15MCQCh. 8 - Prob. 16MCQCh. 8 - Prob. 17MCQCh. 8 - Prob. 18MCQCh. 8 - Prob. 19MCQCh. 8 - Prob. 20MCQCh. 8 - Prob. 21MCQCh. 8 - Refer to Exhibit 8.6. Assume a 5% risk of...Ch. 8 - Prob. 23MCQCh. 8 - Prob. 24MCQCh. 8 - Prob. 25MCQCh. 8 - Prob. 26MCQCh. 8 - Prob. 27MCQCh. 8 - Prob. 28MCQCh. 8 - Prob. 29RSCQCh. 8 - Prob. 30RSCQCh. 8 - Prob. 31RSCQCh. 8 - Prob. 32RSCQCh. 8 - Prob. 33RSCQCh. 8 - Prob. 34RSCQCh. 8 - Prob. 35RSCQCh. 8 - Prob. 36RSCQCh. 8 - Prob. 37RSCQCh. 8 - Prob. 38RSCQCh. 8 - Prob. 39RSCQCh. 8 - Prob. 40RSCQCh. 8 - Prob. 41RSCQCh. 8 - Prob. 42RSCQCh. 8 - Prob. 43RSCQCh. 8 - Prob. 44RSCQCh. 8 - Prob. 45RSCQCh. 8 - Prob. 46RSCQCh. 8 - Prob. 47RSCQCh. 8 - What is stratification? Distinguish between...Ch. 8 - Prob. 49RSCQCh. 8 - Prob. 50RSCQCh. 8 - Prob. 51RSCQCh. 8 - Prob. 52RSCQCh. 8 - Prob. 53RSCQCh. 8 - Prob. 54RSCQCh. 8 - Prob. 55RSCQCh. 8 - Prob. 56RSCQCh. 8 - Prob. 57RSCQCh. 8 - Prob. 58RSCQCh. 8 - Prob. 59RSCQCh. 8 - Prob. 60RSCQCh. 8 - Prob. 61RSCQCh. 8 - Prob. 62RSCQCh. 8 - Prob. 63RSCQ
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- You are evaluating audit results for assets in the audit ofRoberts Manufacturing. You set the preliminary judgment about materiality at $50,000.The account balances, performance materiality, and estimated overstatements in theaccounts are shown next.Account Performance Estimate of TotalAccount Balance Materiality OverstatementsCash $ 50,000 $ 5,000 $ 1,000Accounts receivable 1,200,000 30,000 20,000Inventory 2,500,000 50,000 ?Other assets 250,000 15,000 12,000Total $4,000,000 $100,000 ? a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 inoverstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?b. Based on the audit of the assets accounts and ignoring other accounts, are the overallfinancial statements acceptable? Explain.c. What do you believe the auditor should do in the circumstances?arrow_forwardIn an MUS sample with a sampling interval of $5,000, an auditor discovered that aselected accounts receivable with a recorded amount of $10,000 had an audit valueof $8,000. If this is the only error discovered by the auditor, the projected error ofthe sample would be(1) $1,000. (3) $4,000.(2) $2,000. (4) $5,000.arrow_forwardIn your audit of Aviary Industries for calendar year 2013, you founda number of matters that you believe represent possible adjustments to the company’sbooks. These matters are described below. Management’s attitude is that “once the booksare closed, they’re closed,” and management does not want to make any adjustments.Planning materiality for the audit was $100,000, determined by computing 5% ofexpected income before taxes. Actual income before taxes on the financial statementsprior to any adjustments is $1,652,867.Possible adjustments:1. Several credit memos that were processed and recorded after year-end relate tosales and accounts receivable for 2013. These total $26,451.2. Inventory cutoff tests indicate that $25,673 of inventory received on December 30, 2013,was recorded as purchases and accounts payable in 2014. These items were included inthe inventory count at year-end and therefore were included in ending inventory.3. Inventory cutoff tests indicate several sales invoices…arrow_forward
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