Required a) From the information provided, identify the misstatements for your client, indicating whether there is an overstatement or an understatement and providing your rationale. Also, prepare the proposed adjusting entry to correct the financial statements for the year ended June 30,2021. (8marks) b) State the ISA assertion that was violated by the misstatements in (a) above. (1 mark) As part of your audit of Acom Ltd, you are examining whether accounts receivable is misstated. You decide to use stratified sampling. The accounts receivable subsidiary ledger shows the following accounts, separated by strata: Based on your understanding on internal control around revenue and receivable cycle, your team has assessed that internal controls are relatively weak; therefore, the tolerable misstatement is set at $250,000 (about 3% of the population). Based on the risk of incorrect acceptance, you determined the appropriate confidence factor to be 2.4 . Required a) State which category you would select for target testing and state the rationale. (1 mark) b) State the strata to be selected for auditing sampling (1 mark) c) Based on your answers to part (b) calculate the required sample size for the stated strata (2 marks) d) Assuming the book value of your sample based on the sample size in part (c) is $3,050,000 and the error from this sample amounted to $120,000 and the error noted from the target testing is $30,000. State the overall misstatement in the Accounts Receivable population AND state whether the Accounts Receivable population is fairly stated or not, giving your rationale. (2 marks) Required a) From the information provided, identify the misstatements for your client, indicating whether there is an overstatement or an understatement and providing your rationale. Also, prepare the proposed adjusting entry to correct the financial statements for the year ended June 30,2021. (8marks) b) State the ISA assertion that was violated by the misstatements in (a) above. (1 mark) As part of your audit of Acom Ltd, you are examining whether accounts receivable is misstated. You decide to use stratified sampling. The accounts receivable subsidiary ledger shows the following accounts, separated by strata: Based on your understanding on internal control around revenue and receivable cycle, your team has assessed that internal controls are relatively weak; therefore, the tolerable misstatement is set at $250,000 (about 3% of the population). Based on the risk of incorrect acceptance, you determined the appropriate confidence factor to be 2.4 . Required a) State which category you would select for target testing and state the rationale. (1 mark) b) State the strata to be selected for auditing sampling (1 mark) c) Based on your answers to part (b) calculate the required sample size for the stated strata (2 marks) d) Assuming the book value of your sample based on the sample size in part (c) is $3,050,000 and the error from this sample amounted to $120,000 and the error noted from the target testing is $30,000. State the overall misstatement in the Accounts Receivable population AND state whether the Accounts Receivable population is fairly stated or not, giving your rationale. (2 marks)
