You are testing accounts receivable at Calabro Wireless Services. The informatio

Question

You are testing accounts receivable at Calabro Wireless Services. The information related to accounts receivable is noted below:

Risk of material misstatement is high and risk of other substantive procedures is moderate

1.What is the objective of the test?:

2.Describe the sampling unit:

Haphazard; Random; Systematic

You are testing accounts receivable at Calabro Wireless Services. The information related to accounts receivable is noted below:

Book Value $2,500,000 Tolerable Misstatement $125,000 Expected Misstatement $25,000 Items to be tested 100% $750,000 Items over high risk scope of $25,000 Dollar value of sample $225,000

Risk of material misstatement is high and risk of other substantive procedures is moderate

1.What is the objective of the test?:

2.Describe the sampling unit:

3.Describe how completeness of the population has been considered: 4.Describe what will be considered a misstatement: 5.Sample selection method:

Haphazard; Random; Systematic

6.Sample size calculation (used PPC substantive testing sampling worksheet; show work)

Explanation / Answer

1. Objective of the test: In general, objective of the test is to assess the risk of material misstatement in financial statement. In this case the objective of the test is to assess the risk of misstatement in accounts receivable.

2. Sampling Unit: A sampling unit is one of the units into which an aggregate is divided for the purpose of sampling, each unit being regarded as individual and indivisible when the selection is made.

3. Completeness of the Population: Completeness of population has been considered when the auditor is satisfied that the population from the sample is drawn is appropriate for the desired audit objective and complete.

4. Misstatement: When something is not stated fairly and in compliance with the applicable financial reporting framwork, then it should be considered a misstatement.

5. Sample selection method:

Five methods are commonly used to select population items for audit testing:

6. Sample size calculation:  (Dollar Value of Remaining Population / Tolerable Misstatement) x Risk Factor

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