PA has just completed the accounts receivable confirmation process in the audit of Danforth Paper Company Ltd., a paper supplier to retail shops and commercial users.

Following are the data related to this process:

Accounts receivable recorded balance                        $2,760,000

Number of accounts                                                                 7,320

A non statistical sample was taken as follows:

All accounts over $10,000 (23 accounts)                         $465,000

77 accounts under $10,000                                                 $81,500

Materiality                                                                            $100,000

Inherent and control risk are both high.

No relevant analytical procedures were performed.

The table at right gives the results of the confirmation procedures.

REQUIRED

a. What type of non-statistical sampling method would PA have used? Justify your response.

b. Explain the advantages and disadvantages of using stratified sampling for the Danforth Paper Company Ltd. sample selection.

c. If statistical sampling were used, which method would be used? Justify your response.

d. Describe the process that would be used to evaluate the results of the non statistical sample. Consider both the direct implications of the misstatements found and the effect of using a sample.

Transcribed Image Text:

Recorded Audited Value Value Items over $10,000 $465,000 $432,000 Items under $10,000 81,500 77,150 Individual misstatements for items under $10,000: Item 12 5,120 4,820 Item 19 485 385 Item 33 1,250 250 Item 35 3,975 3,875 Item 51 1,850 1,825 Item 59 4,200 3,780 Item 74 2,405 19,285 14,935