The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation
ID: 2459353 • Letter: T
Question
The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation for the fiscal year ended October 31. Michelle Le, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Coomes’s inventory account. The balance in the inventory at October 31 was $4,250,000. Michelle has established the following: risk of incorrect acceptance = 5% (i.e., the desired confidence level of 95%), tolerable misstatement = $212,500, and expected misstatement = $63,750.
Calculate the sample size and sampling interval using Table 8-5. (Use the tables, not ACL, to solve for these problems. Round your intermediate calculations to 3 decimal places. Round your interval answers to the nearest dollar amount.)
Sampling interval ________$
Hon Zhu, staff accountant, performed the audit procedures listed in the inventory audit program for each sample item. Calculate the upper limit on misstatement based on the following misstatements using Table 8-5, Table 9-3. What should Hon conclude about Coomes’s inventory account? (Use the tables, not ACL, to solve for these problems. Round your intermediate calculations to 3 decimal places. Round your answers to the nearest dollar amount.)
UML using the table 8-5 _______________$
Required:Explanation / Answer
a)
Book value = $4,250,000
Confidence level = 95%
Tolerable misstatement = $212,500
Tolerable deviation rate = 212,500/4,250,000 = 5%
Expected misstatement = $63,750
Expected population deviation rate = 63,750/4,250,000 = 2%
Based on Table 8-5, page 286, sample size is 181.
So sample interval is $23,481 (4,250,000/181)
b)
Tainting factor = (Book Value-Audit Value) / Book Value
Misstatement Number
Book Value
Audit Value
Tainting Factor
1
$ 6,000
$ 2,000
0.67
2
24,000
20,000
NA
3
140,000
65,000
NA
Customer Name
Tainting Factor
Sampling Interval
Projected Misstatement (columns 2 × 3)
95% Misstatement Factor or Increment
Upper Misstatement Limit(Columns 2× 3× 5)
Basic Precision
1
23,481
N/A
3
$ 70,443
1
0.67
23,481
15732.27
1.7
$ 26,745
3
NA
23,481
75000
NA
$ 75,000
2
NA
23,481
4000
NA
$ 4,000
$ 176,188
Upper Misstatement Limit = $176,188
Misstatement Number
Book Value
Audit Value
Tainting Factor
1
$ 6,000
$ 2,000
0.67
2
24,000
20,000
NA
3
140,000
65,000
NA
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