Modern Auditing 8th edition.

chapter 16, question 38 part II

Part II : Substantive Test

CTI prices its inventory at FIFO. You select a random sample of 35 items for price testing and find the following results as of year end, 2002 (see Exhibit 16-38 on page 800). The total value of inventory is $1.027.000. you should assume that errors exist in the unsampled portion of the population in the same proportion that they exist in sample.

Required :

6.Evaluate the implications of the evidence you noted above.

a.What are the implications of your direct findings for fair presentation in the financial statements? You may assume that it is your best guess that errors found in your sample are representative of errors that would exist in items that you did not sample.

b.Based on your findings, what additional audit procedures should be performed, if any?

7.What issues do you want to discuss with company management and the board of directors? Draft your management letter comments regarding the issues that you want to duscuss with the company management, and indicate (in the margin) who you would hae the conversation with.

8.As the auditor for CTI, what conversations or correspondence, if any, should you have with First State Bank?