AUDIT+SAMPLING+CASE+MEMO.ppt

7/27/2019 AUDIT+SAMPLING+CASE+MEMO.ppt

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AUDIT SAMPLING CASE MEMOTEAM C

LaToya Arceneaux, Victoria Gaddie, Stephanie Jackson,

John Klein, Eric RothUniversity of Phoenix

12 March 2012

Acct 490/Aaron Strenkoski


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MT. HOOD

FURNITURE

Final Inventory

Compilation

Review


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AUDIT OBJECTIVES Obtain reasonable assurance that an assertion is

presented fairly concerning material respects

Use audit sampling to estimate dollar amount of apopulation or to estimate the dollar amount ofmisstatement in a population

Used to value inventory based on a sample size


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Sample Size Nonstatistical or Statistical

Factors: book value, risk of incorrect acceptance,

tolerable misstatement, anticipated misstatement N = BV X RF / TM (AM X EF)

BV- book value, RF- reliability factor, TM- tolerablemiststaement, AM- anticipated misstatement, EF-

expansion factor N = 6,753,764 / 210

N = 32.16


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Scenarios Many scenarios

Control Risk

Audit riskAnalytical tests

37 percent- high to leave control risk lower

Sample size = 33


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PPS Sample Expensive

Not difficult

Number of overstatements = zero

Population book value has not been misstated


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Testing the Correctness of

Pricing Test for accuracy of inventories to ensure they are

correctly priced

Various types of testing for correctness which aredependent on the level of complexity of the item:

1. Raw Materials Least complex, little effort

2. Processed and Finished Goods- more complex

requires multiple reviews and help from a specialist3. Inventory valuation testing is most complex

and requires testing of standards for accuracy and acalculated valuation as support


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Projected Population Mission

Statement No misstatements were found therefore the projected

misstatement (PM) could not be calculated

PM = Tainting Percentage x Sample Interval

Instead calculated allowance for sampling risk factorusing the basic precision

Basic Precision is amount of est. misstatement Basic Precision = Reliability Factor (RF) for Zero

misstatements x Sampling Interval

Based on conclusion of RF = 1.0


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Calculations To find the Sample Interval (SI) the following

calculations were used

SI=BV/n

SI = 6,753,764 / 33

SI = 204,660 (rounded to the nearest dollar)

Basic Precision is then calculated

BP = 1.0 x 204,660 BP = 204,660

Because projected misstatement is 0, basic precisionwas used to determine if misstatement exceeds pop.


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Audit Conclusion Based on calculations, the following conclusion was

made

Mt. Hood Furnitures final inventory book value has notbeen overstated by more than the tolerablemisstatement of 37%.

Conclusion was reached by using various statisticalcalculations


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Support Calcuations These data points were used to make the necessary

calculations

Sample size of 33 using the more expensive PPS sample

Sample tested had 0 misstatements

Fewer misstatements means lower likely hood ofmisstatements in the population sample

0 misstatements does not guarantee that there are noterrors

To help reduce risk and determine the upper limit oftolerance, used basic precision method

Upper statement of $204,660 < tolerated $325,000


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FindingsWith an upper misstatement limit of $204,660 being

less than the tolerated misstatement of $325,000 Mt.Hood Furniture has not overstated the book value ofthe population by more than the tolerable amount

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AUDIT+SAMPLING+CASE+MEMO.ppt