In this mini-case you will complete the test of details on accounts receivable for the 2016 audit of EarthWear Clothiers, Inc. The principal test of detail involves sending "confirmations" or letters to customers so that they can confirm that they owe EarthWear the reported balance. All six customer accounts receivable balances exceeding $100,000 were targeted for testing. These six balances, aggregated total of $921,000, were confirmed without exceptions. The remaining accounts are of similar size and total $7,722,000 and will be tested via audit sampling. Inputs for the sample size determination were, Desired Confidence Level-95%, Tolerable Misstatement-$600,000, and Expected Misstatement-$154,440. Based on these inputs, 68 accounts receivable balances were selected for confirmation requests. The first 64 accounts receivable confirmations have already been reviewed by other staff members and no errors have been found. The remaining four confirmations require your review as they were returned with notes from customers indicating a potential misstatement. Please note that legitimate timing differences do not result in misstatements.

1. Review the four confirmation responses in the PDF file downloaded from the mini-case website (a link is also provided below). Enter the information into Work Paper 10-1. For each confirmation response, please determine whether the difference noted by the customer represents a misstatement or a timing difference. After reviewing all four confirmations, please complete both the nonstatistical and the statistical evaluation options outlined on Work Paper 10-1. Chapter 9 of the text provides guidance on both nonstatistical and statistical evaluation. You will need to obtain the Sampling Interval before evaluating the results statistically using IDEA. One approach you can use to obtain the sampling interval is to calculate the sample size in IDEA using the inputs provided above. Please refer to Chapter 9 for a description of how to calculate a sample size and evaluate errors using IDEA. Please be careful as you enter your results from IDEA to the work paper as the items may not be listed in the same order.

G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EarthWear Red Star Health Group 3520 Lone Star DR Dallas TX 75212-6301 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol OrcRay Carol Mckay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $12,365 as of December 31, 2016, is correct except as noted below: Our accounting records show a balance of $12,356. CUSTOMER NAME Date 1/21/2017 By David allen Print Name: David Allen Position: Accounts Payable Clerk P. O. Box 787 - Boise, Idaho 83845G A ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 652-54310 DATE: 1/24/2017 CC: RED STAR HEALTH GROUP Upon review of our documents and in consultation with the customer, we have determined the customer's records were correct. The correct balance is $12,356 as indicated by the customer on the confirmation request.G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EarthWear Clothiers P.O. Box 787 Phone: (208) 555-0190 Boise, Idaho 83845 Fax: (208) 555-0191 E-mail: accounts@ewclothiers.com Statement Statement #: None (Confirmation Request) Bill To: Accounts Payable Date: December 31, 2016 Red Star Health Group Customer ID: 652-54310 3520 Lone Star D Dallas TX 75212-6301 Date Type Invoice # Description Amount Payment Balance 12/23/2016 Embroidered Goods 12-6354903 Embroidered shirts (qty. 400) $ 12,365.00 $ $ 12,365.00 Total 12,365.00 Reminder: Please include the invoice number (s) on your check. Terms: Balance due in 30 days. REMITTANCE Customer Name: Red Star Health Group Customer ID 652-54310 Statement#: None (Confirmation Request) Date: December 31, 2016 Amount Due: $12,365.00 Amount Enclosed.G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + Museum of Flight EarthWear 308 Air St. Dayton OH 45404-1808 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol Que Ray Carol Mckay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $14,235 as of December 31, 2016, is correct except as noted below: We show no balance due at the end of last year . CUSTOMER NAME Date / 17 / 20/7 By alexis Oliver Print Name: Alexis Oliver Position: Gift Shop Store Manager P. O. Box 787 - Boise, Idaho 83845G A ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 210-38725 DATE: 1/21/2017 CC: MUSEUM OF FLIGHT The customer's order was shipped FOB shipping point on December 31, 2016. The freight company confirmed their order was delivered January 2, 2017. The balance shown on the confirmation request of $14,235 is correct. W&A Staff Auditor Note: Examined shipping document and agree with Earth Wear assessment. DLJ V/21/2017G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + Earth Wear Clothiers P.0. Box 78 Phone: (208) 555-0190 Boise, Idaho 83845 Fax: (208) 555-0191 E-mail: accounts@ewclothiers.com Statement Statement #: None (Confirmation Request) Bill To: Accounts Payable Date: December 31, 2016 Museum of Flight Customer ID: 210-38725 308 Air St Dayton OH 45404-1808 Date Type Invoice # Description Amount Payment Balance 12/31/2016 Embroidered Goods 12-71 13264 Fleece Vests (500) $ 14,235.00 $ 14,235.00 Total $ 14,235.00 Reminder: Please include the invoice number(s) on your check. Terms: Balance due in 30 days. REMITTANCE Customer Name: Museum of Flight Customer ID: 210-38725 Statement #: None (Confirmation Request Date: December 31, 2016 Amount Due: $14,235.00 Amount Enclosed:G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + Summit Hills Country Club Earth Wear 236 Dudley Road Crestview Hills, KY 41017 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol Mckay Carol Mckay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $24,362 as of December 31, 2016, is correct except as noted below: A payment for invoice 12-6156389 was sent on December 30, 2016. Balance due per our records was $21,520 . CUSTOMER NAME Date 1/ 18/2017 By Greg Simon Print Name: Greg Simon Position: Pro Shop Manager P. O. Box 787 - Boise, Idaho 83845G A ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 254-65418 DATE: 1/22/2017 CC: SUMMIT HILLS COUNTRY CLUB The payment was received from the customer on January 2, 2017. All balances were outstanding as of the end of 2016. W&A Staff Auditor Note: Traced payment indicated by customer to daily remittance report. Payment was received on January 2 , 2017 . DLJ 1/23/2017G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EarthWear Clothiers P.O. Box 787 Phone: (208) 555-0190 Boise, Idaho 83845 Fax: (208) 555-0191 E-mail: accounts@ewclothiers.com Statement Statement #: None (Confirmation Request) Bill To: Pro Shop Date: December 31, 2016 Summit Hills Country Club Customer ID: 254-62418 236 Dudley Road Crestview Hills, KY 41017 Date Type Invoice # Description Amount Payment Balance 12/19/2016 Embroidered Goods 12-6156389 Club Blazers Female (35) $ 2,842.00 $ 2,842.00 12/26/2016 Embroidered Goods 12-6756231 Assorted Dress Shirts (450) $ 18,635.00 $ 18,635.00 12/27/2016 Embroidered Goods 12-6812246 Club Blazers Male (36) $ 2,885.00 $ 2,885.00 Total $ 24,362.00 Reminder: Please include the invoice number(s) on your check Terms: Balance due in 30 days. REMITTANCE Customer Name: Summit Hills Country Club Customer ID: 254-6241 Statement# None (Confirmation Request) Date: December 31, 2016G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + Central States Hotels - Best Western Development Director 4346 MAIN ST EarthWear KANSAS CITY MO 64111 - 1810 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Carol Mckay Carol Mckay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $18,642 as of December 31, 2016, is correct except as noted below: Balance does not include Credit Memo 12-1006 issued on December 29, 2016 for $3,000. Balance should be 815, 642. CUSTOMER NAME Date 1/21/2017 By Robert Morgan Print Name: Robert Morgan Position: Accounts Payable Clerk P. O. Box 787 - Boise, Idaho 83845G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 652-54310 DATE: 1/24/2017 CC: CENTRAL STATES HOTELS - BEST WESTERN DEVELOPMENT DIRECTOR The customer service representative agreed to issue a $3,000 credit memo to the group when they called on December 29, 2016. The customer service representative inadvertently listed Western States Hotels which delayed processing of the credit memo until January 4, 2017. The credit memo was correctly attributed to Central States Hotels, but not until the next accounting period. The balance the customer listed of $15,642 is correct.G ezto-cf-media.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/... + EarthWear Clothiers P.0. Box 787 Phone: (208) 555-0190 Boise, Idaho 83845 Fax: (208) 555-0191 E-mail: accounts@ewclothiers.com Statement Statement #: None (Confirmation Request) Bill To: Best Western Development Director Date: December 31, 2016 Central States Hotels Customer ID: 179-26343 1346 Main Street Kansas City, MO 6411-1810 Date Type Invoice # Description Amount Payment Balance 12/21/2016 Catalog Order 12-6200679 Dress Pants (150) $ 7,247.00 $ $ 7,247.00 12/22/2016 Embroidered Goods 12-6214596 Assorted Dress Shirts (300 $ 11,395.00 $ 11,395.00 Total $ 18,642.00 Reminder: Please include the invoice number(s) on your check. Terms: Balance due in 30 days. REMITTANCE Customer Name: Cental States Hotels Customer ID: 179-26343 Statement#: None (Confirmation Request) Date: December 31, 2016 Amount Due: $18,642.0G ezto.mheducation.com C Question 1 - Audit Simulation-part 1 - Connect about:blank https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/messier_10e/. Audit Simulation-part 1 i Saved Help Save & Exit Submit Check my work mode : This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion. This question will be sent to your instructor for grading. Return to question 210-38725 Museum of Flight $ 14,235 $ $ 14, 235 Timing Difference S 254-62418 Summit Hills Country Club 24,362 $ 21, 520 $ 2, 842 Cut-off error S 100 points 179-26343 Central States Hotels S 18 , 642 $ 15, 642 $ 3,000 Mistake $ 3, 000 64 additional items 880 , 560 $ 880 , 650 $ 0 $ 0 Total Dollar Amount of Items in Sample 950 , 164 Net misstatement $ 3, 009 Total Dollar Amount of Items in Sampling $ 7, 722, 000 Population Nonstatistical Evaluation of Errors Ratio of Amount of Misstatements in Projected Misstatement Sample Misstatement Evaluation of Test Results $ 3,009 0. 32 8 $ 24, 454 Statistical Evaluation of Errors using IDEA Monetary Unit Sampling Upper Error Item Error Most Likely Error Limit Evaluation of Test Results Basic Precision 12 , 365 O 18 , 642 3, 000 Totals Evaluation Method Comparison Mc Graw Prev 1 of 1 Next >