Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You were selected to lead the audit of Down Low Ltd for the year ended 30 September 2021. One of the assistants has been auditing

You were selected to lead the audit of Down Low Ltd for the year ended 30 September 2021. One of the assistants has been auditing the accounts receivable which has an ending balance of $3,800,000. This balance is made up of 2100 accounts receivable ledger account transactions.

It is noted in the working papers that 90 accounts were selected for checking. The basis of the sample selection was as follows:

The 20 largest accounts were selected

Haphazard sampling of the remainder

Any balance under $5,000 were regarded as too small to be chosen

The test performed on those items selected was to ask the customers to confirm in writing what they think the balance outstanding was at year-end (accounts receivable circularization).

The results of the test show the following:

Number of items selected

Balance in sales ledger

Balance confirmed by debtor

No errors found (includes the 20 largest accounts)

65

$405,000

405,000

No confirmation by accounts receivable

7

16,000

16,000

Difference due to goods in transit to customers

6

14,500

8,200

Errors in calculating invoice total

2

21,000

12,000

Invoices posted to incorrect debtors ledger account

6

11,300

9,800

Invoice disputes with customer

9

12,000

7,500

Total

95

479,800

458,500

REQUIRED

a. Discuss the method of sample selection (including possible sampling risks) and suggest how this could be improved in order to be able to detect other material misstatements. (8 marks)

b. For any two of the categories where errors have been identified, discuss the potential misstatement that could arise and any adjustments that should be made to the financial statement. (6 marks)

c. Describe any further procedure that you will need to carry out in order to provide reasonable assurance about the test results, taking into consideration the sampling method used to produce the above test results. (6 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microeconomics Theory And Applications

Authors: Edgar K. Browning, Mark A. Zupan

10th Edition

0470128917, 9780470128916

More Books

Students also viewed these Accounting questions

Question

2. Should a disciplinary system be established at Carter Cleaning?

Answered: 1 week ago

Question

1. What would you do if you were Jennifer, and why?

Answered: 1 week ago

Question

1. Explain what is meant by ethical behavior.

Answered: 1 week ago