McMullen and Mulligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. The senior-in-charge of the audit, plans to use MUS to audit Cusicks inventory account. The balance at December 31 was $9,000,000.

Required:

A. Based on the following information, use the appropriate table to compute the required MUS sample and sampling interval:

Tolerable misstatement = 4%

Expected misstatement = 1%

Risk of incorrect acceptance = 5%

B. The staff accountant performed the audit procedures listed in the inventory audit program and notes the following results of the tests:

Using this information and the MUS misstatement factors in the table below, calculate the upper misstatement limit.

C. What conclusion should the auditor make concerning the inventory?

N Misstatement Number 1 2 3 4 Book Value $10,000 9,000 60,000 800 Audit Value $7,500 6,000 0 640 3 4 Monetary Unit Sampling Misstatement Factors for Sample Evaluation? Number of Misstatements 90% Desired Confidence Level Misstatement Incremental Factor Increase 95% Desired Confidence Level Misstatement Incremental Factor Increase 2.3 0 1 2 3 4 5 6 Nm 3.9 5.3 6.6 7.9 9.1 10.3 1.6 1.4 1.3 1.3 1.2 1.2 3.0 4.7 6.2 7.6 9.0 10.3 11.5 1.7 1.5 1.4 1.4 1.3 1.2