Your audit client has a substantial portfolio of marketable securities that it holds at the end of the year.

The detail for the marketable securities accounts follows. Your client purchased 100 securities as trading securities during the year and sold 75 of them. In the held-to-maturity category, it purchased one security at a cost of $1,000,000.

a. Describe how you would use sampling to gather evidence regarding the purchases and sales in the trading and held -to-maturity security accounts. Would you use sampling to examine changes in both account types?
b. Prepare a sampling plan to perform the test you have decided to do. The desired level of assurance is 90% (10% risk of incorrect acceptance). The ratio of estimated misstatement to tolerable misstatement is 0.00. The materiality level is $800,000. The client purchased 100 securities at a cost of $6,000,000 and sold 80 securities with an original cost of $5,100,000. The auditor uses 75% of materiality to determine tolerable misstatement.
c. Explain how you will evaluate the results of your sample. State clearly the possible conclusions from yourtests.

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Balance at 12/31/11Balance at 12/31/12 Trading securities Held-to-maturity securities $2,500,000 $5,000,000 $3,400,000 $6,000,000