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In the audit of Best Price Company for the year ended September 30, the auditor set a tolerable misstatement of $ 25, 000 at an

In the audit of Best Price Company for the year ended September 30, the auditor set a tolerable misstatement of $ 25, 000

at an ARIA of 25 %. A PPS sample of 100 was selected from an accounts receivable population that had a recorded balance of $ 1, 850,000.

The following table shows the differences uncovered in the confirmation process:

Accounts

Accounts

Receivable

Receivable per

per Records

Confirmation

Follow-up Comments by Auditor

1.

$2,791.00

$2,523.00

Pricing error on two invoices.

2.

$5,650.00

-0-

Customer mailed check 9/26; company received check 10/3.

3.

$3,790.00

$1,290.00

Merchandise returned 9/30 and counted in inventory; credit

was issued 10/6.

4.

$680.00

$630.00

Footing error on an invoice.

5.

$720.00

-0-

Goods were shipped 9/28; customer received goods on 10/2;

sale was recorded on 9/28.

6.

$3,220.00

$3,212.00

Pricing error on a credit memorandum.

7.

$1,720.00

-0-

Goods were shipped on 9/29; customer received goods 10/3;

sale was recorded on 9/30.

Requirements

a.

Calculate the upper misstatement bound on the basis of the client misstatements in the sample.

b.

Is the population acceptable as stated? If not, what options are available to the auditor at this point? Which option should the auditor select? Explain.

Complete the table below to compute the upper misstatement bound. Begin by calculating the amounts needed to calculate the overstatement bound and then, calculate the totals, basic precision and upper misstatement bound. (Enter the tainting proportion to three decimals places, X.XXX. Enter the incremental change in confidence factor to two decimal places, X.XX. Round all other amounts to the nearest whole dollars. Leave unused cells blank.)

Projected

Misstatement

Incremental

Plus Incremental

Sampling

Projected

Change in

Allowance for

Tainting

Interval

Misstatement

Confidence Factor

Sampling Risk

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