Question
#1.Nonstatistical sampling: An auditor has randomly and audited a sample of 100 of Willard Incs accounts receivable. Willard has 3,000 accounts receivable accounts with a
#1.Nonstatistical sampling: An auditor has randomly and audited a sample of 100 of Willard Incs accounts receivable. Willard has 3,000 accounts receivable accounts with a total book value of $3,000,000. The auditor has determined that the accounts tolerable misstatement is $250,000. The sample results are as follows:
Average audited value $990
Average book value 998
Calculate the accounts receivable estimated audited value and projected misstatement using the:
a) Mean-per-unit method.
b) Ratio method.
c) Difference method.
#2 PPS sampling: The auditors wish to test the valuation of accounts receivable in the audit of Dannon Company. The client has $500,000 of total recorded receivables, composed of 850 accounts. The auditors have determined the following:
Tolerable misstatement $25,000
Risk of incorrect acceptance 5%
Expected misstatement$ 2,000
The auditors have decided to use PPS sampling (monetary unit sampling).
a. For planning the sample, calculate:
(1) Required sample size.
(2) Sampling interval.
b. Assume that the auditors have tested the sample and discovered three misstatements:
Book Value Audited Value
$ 50 $ 47
800 760
8,500 8,100
Calculate:
(1) Projected misstatement.
(2) Basic precision.
(3) Incremental allowance.
(4) Upper limit on misstatement.
c. Comment on the quantitative and qualitative implications of b).
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