Jones compared the total factual and projected misstatement from the items tested 100 percent and items sampled of $5,015 with her $15,000 expectation of misstatement of accounts receivable and concluded that the sample results met the desired test objective. She also compared the remaining unadjusted misstatement ($3,565) with the $150,000 tolerable misstatement and determined that there was a small risk that this account could be misstated by more than the tolerable misstatement (of $150,000). In other words, there was an ample "cushion" between the tolerable misstatement and the remaining projected misstatement amounts to be able to conclude there is a low risk of material misstatement in the account. Jones investigated the nature and cause of the misstatements and determined that, as they resulted from explainable minor clerical error, they were not indicative of additional audit risk or a significant deficiency or material weakness in controls. AU-C section 265, Communicating Internal Control Related Matters Identified in an Audit (AICPA, Professional Standards), provides further guidance on evaluating the severity of control deficiencies identified in the audit.

What if the projected differences were $2,000, $7,000 and $8,000 respectively for each category sampled? Would Jones reach a different conclusion?

What if the projected differences were $14,999, $0 and $0 respectively for each category sampled? Would Jones reach a different conclusion?

What if upon investigation it was determined the $5,015 projected error (total for all 3 categories) was the result of fraud. Would Jones be able to reach the same conclusions above? Would any additional procedures need to be performed? (if so what)?

5.15

Jones concluded that the sample results supported the recorded amount of the accounts-receivable balance; however, she did aggregate the remaining projected misstatement from the sample results with other factual and projected misstatements to evaluate whether the financial statements as a whole might have been materially misstated. Her evaluation of the potential material misstatement of the financial statements as a whole included considering qualitative factors, for example, trends and account relationships.

(What are examples of qualitative factors that Jones might have seen per the information above?) What qualitative factors would indicate the account might be materially misstated?