17-29 (Objective 17-3) In the audit of Price Seed Company for the year ended September 30, the auditor set a tolerable misstatement of $50,000 at an ARIA of 10 percent. A PPS sample of 100 was selected from an accounts receivable population that had a recorded balance of $1,975,000. The following table shows the differences uncovered in the confirmation process: Accounts Accounts Follow-Up Comments by Auditor Receivable Receivable per per Records Confirmation 1. $2,728.00 $2,498.00 Pricing error on two invoices. 2. $5,125.00 -0- Customer mailed check September 26; company received check October 3. 3. $3,890.00 $1,190.00 Merchandise returned September 30 and counted in inventory; credit was issued October 6. 4. $ 815.00 $ 785.00 Footing error on an invoice. 4. $ 815.00 $ 785.00 Footing error on an invoice. 5. $ 548.00 -0- Goods were shipped September 28; customer received goods on October 2; sale was recorded on September 28. 6. $3,215.00 $3,190.00 Pricing error on a credit memorandum. 7. $1,540.00 -0- Goods were shipped on September 29; customer received goods October 3; sale was recorded on September 30. For all exceptions, the auditor is concerned with four issues: 1 Whether there is a client error or is the exception the result of a timing error; 2 The amount of the client error, if any; 3 The cause of the exception; 4 Potential misstatements in the untested population. Tolerable misstatement for this test is $50,000. Statistical test; PPS Sample Using the data in 17-29 complete the following audit steps: Audit Step 1 For each of the 7 confirmation exceptions listed in 17-29, determine which of the exceptions represent misstatements. Calculate the upper misstatement bound. Conclude on the acceptability of the accounts receivable balance. 2 3 Item 1 2 3 4 Recorded Value $2728.00 $5125.00 $3890.00 $815.00 $548.00 $3215.00 $1540.00 Audited Value $2498.00 SO $1,190 $785.00 $0 $3190.00 $0 Factual Misstatement $230.00 $5125.00 $2700 $24 $548 $75 $1540 % Misstatement (Tainting) (a) 0.08431 0 0.69409 -0.0303 0 -0.8923 -0.0241 Sampling Interval (b) 21,236 21,236 21,236 21,236 21,236 21,236 21,236 5 6 7 Projected Misstatement (PM = a xb) Rank Incremental Change in confidence factor (d) Projected Misstatement Plus Allow for Sampling Risk (PMX d) 1 1790.40 2 0 3 14739.69 4 -643.4508 5 0 6 -18948.88 7 -511.7876 Add basic precision Upper misstatement bound Conclusion: 17-29 (Objective 17-3) In the audit of Price Seed Company for the year ended September 30, the auditor set a tolerable misstatement of $50,000 at an ARIA of 10 percent. A PPS sample of 100 was selected from an accounts receivable population that had a recorded balance of $1,975,000. The following table shows the differences uncovered in the confirmation process: Accounts Accounts Follow-Up Comments by Auditor Receivable Receivable per per Records Confirmation 1. $2,728.00 $2,498.00 Pricing error on two invoices. 2. $5,125.00 -0- Customer mailed check September 26; company received check October 3. 3. $3,890.00 $1,190.00 Merchandise returned September 30 and counted in inventory; credit was issued October 6. 4. $ 815.00 $ 785.00 Footing error on an invoice. 4. $ 815.00 $ 785.00 Footing error on an invoice. 5. $ 548.00 -0- Goods were shipped September 28; customer received goods on October 2; sale was recorded on September 28. 6. $3,215.00 $3,190.00 Pricing error on a credit memorandum. 7. $1,540.00 -0- Goods were shipped on September 29; customer received goods October 3; sale was recorded on September 30. For all exceptions, the auditor is concerned with four issues: 1 Whether there is a client error or is the exception the result of a timing error; 2 The amount of the client error, if any; 3 The cause of the exception; 4 Potential misstatements in the untested population. Tolerable misstatement for this test is $50,000. Statistical test; PPS Sample Using the data in 17-29 complete the following audit steps: Audit Step 1 For each of the 7 confirmation exceptions listed in 17-29, determine which of the exceptions represent misstatements. Calculate the upper misstatement bound. Conclude on the acceptability of the accounts receivable balance. 2 3 Item 1 2 3 4 Recorded Value $2728.00 $5125.00 $3890.00 $815.00 $548.00 $3215.00 $1540.00 Audited Value $2498.00 SO $1,190 $785.00 $0 $3190.00 $0 Factual Misstatement $230.00 $5125.00 $2700 $24 $548 $75 $1540 % Misstatement (Tainting) (a) 0.08431 0 0.69409 -0.0303 0 -0.8923 -0.0241 Sampling Interval (b) 21,236 21,236 21,236 21,236 21,236 21,236 21,236 5 6 7 Projected Misstatement (PM = a xb) Rank Incremental Change in confidence factor (d) Projected Misstatement Plus Allow for Sampling Risk (PMX d) 1 1790.40 2 0 3 14739.69 4 -643.4508 5 0 6 -18948.88 7 -511.7876 Add basic precision Upper misstatement bound Conclusion
