In auditing the annual physical inventory being taken by employees in the Sutter Company, you decide to
Question:
In auditing the annual physical inventory being taken by employees in the Sutter Company, you decide to use estimation sampling for variables to estimate the cost of the inventory. You choose to use a plan that will consider the risk of accepting a materially misstated book value as being fairly stated. Thus far, the following information has been compiled:
Required:
a. Calculate the beta risk.
b. Calculate the planned precision.
c. Calculate the necessary sample size, using sampling without replacement.
d. Ignore the answer to c above. Instead, assume that 121 items in inventory are selected for physical count, tests of pricing and other appropriate audit procedures. Assume that the total audited value of this sample is \(\$ 36,300\) and that the standard deviation of the sample is \(\$ 105\). May the auditor conclude that the book value of the inventory is fairly stated?
Transcribed Image Text:
Book value of inventory Amount considered material Population size Estimated standard deviation Desired reliability (1 - a risk) Internal control effectiveness Supplemental audit procedures effectiveness Desired combined reliability $2,078,534 200,000 6,511 100 90% 40% 30% 95%
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