Question
Can someone please explain how they got 30 items for the remainder of the sample for answer B? I dont understand how they got 30?
Can someone please explain how they got 30 items for the remainder of the sample for answer B? I dont understand how they got 30? Please please explain in a step-by-step calculation. Thank you so much!!
The auditors wish to test the valuation of accounts receivable in the audit of Kaplan Corporation. The client has $990,000 of total recorded receivables, composed of 2,040 accounts. The auditors have decided to use structured nonstatistical sampling and have determined the following:
Tolerable misstatement $48,000
Assessment of inherent and control risk Moderate
Risks related to other substantive procedures Moderate
a. Calculate the required sample size. Answer: 33
Solution: $990,000 x 1.6 (reliability factor)/$48,000 = 33
b. Assume that the auditors have tested the sample and discovered the following three misstatements. The remainder of the sample had an average value (book and audited) of $523. Use the ratio estimation method to calculate the projected misstatement of the population.
Book Value 100 525 885
Audited Value $108 634 520
Projected misstatement: $14,274
Solution: The book value of the three accounts with misstatements is $1,510 ($100 + 525 + 885) while the audited value is $1,262 ($108 + 634 + 520). Since the remainder of the sample, 30 items, has an average book and audited value of $523, the total is $15,690 ($523 x 30).
Accordingly, the sample total audited and book value is as follows:
3 accounts with misstatements: Book Value $1,510 Audited Value $1,262
Other 30 accounts: 15,690 15,690
Total $1,510 + 15,690 = $17,200 $1,262 + 15,690 = $16,952
17,200 16,952 = Sample net misstatement
The projected misstatement may be calculated as: Projected misstatement = (Sample net misstatement/Book value of sample) x Book value of population = ($248/$17,200) x $990,000 = $14,274
Question: How did they get 30 items?
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