"Foot Fault" is a small wholesaler and service supplier concentrating on the tennis market. They are located in the Hamilton, Ontario area and carry on business in South-Central Ontario.

In the course of regular business, Foot Fault sells goods and supplies to local sports and athletic clubs (for retail sale in the club's "Pro Shops", meaning the in-club retail stores) as well as servicing the physical needs of clubs (tennis net repairs, tennis court surface repairs, etc.). Foot Fault sources many products from a wide variety of suppliers, although typically there are a small number who represent significant dollar volumes of

inventory purchases.

Teper and Lubetsky LLP are the auditors for Foot Fault, which has been a client of the firm for several years.

One of the audit procedures your manager has assigned to you is to determined if the balances in Foot Fault's Accounts Payable (sometimes known as "Trades Payable") are materially misstated. The Accounts Payable sub-ledger balances to the Accounts Payable Control Account, so that is not an issue for you.

You approach this task by stratifying the balances based on a top strata (which includes individually significant

accounts) and the remainder of the strata are roughly equally sized by dollar value.

This stratification of Accounts Payable and the pre-determined relevant materiality for this account are:

Note: brackets (SXXX) indicate negative dollar values

POPULATION

SAMPLE

Stratu

Population Size

Recorded

Recorded $ Amount

m

Misstatement $ Amount

Sample

Size

$ Amount

1

15

$312,500

15

$312,500

$4,365

2

405 802

$239,063

100

$42,125

$1,920

3

$246,094

99

$21,450

($735)

4

1,600

$225.000

101

$15,648

$15.648

($1,065)

5

3,203

$227,343

100

$10,120

$741

TOTAL

6,025

$1,250,000

415

$401,843

$5,226

The audit manager has determined that the appropriate level of materiality applicable to this analysis is:

$11,000

Required:

Both parts (a) and (b) require analysis using stratification.

a) Calculate the Likely Aggregate Misstatement using the Ratio Method (show or explain your calculations).

b) Calculate the Likely Aggregate Misstatement using the Difference Method (show or explain your calculations).

c) Are you able to determine whether there is a material misstatement in Foot Fault's Accounts Payable balance? Explain why or why not with reference to both Methods of calculating a Likely Aggregate Misstatement ("yes" or "no" answers without explanation are insufficient)

Note: students may consider the Likely Aggregate Misstatement ("LAM") to be the same as the Projected Likely Misstatement ("PLM"), as presented in course materials.