You have been assigned the task of testing the accuracy of the final inventory c

Question

You have been assigned the task of testing the accuracy of the final inventory compilation for Mt. Hood Furniture. You may assume that you have separately observed the inventory and that you are satisfied that the inventory was accurately counted. However, you need to test that quantities were accurately transcribed to the final accumulation and valuation of inventory and that the inventory is correctly priced and accumulated. The table beginning on page 617 presents the audited values associated with Mt. Hood

Explanation / Answer

Book Value of the Population $6,753,764 (BV) Tolerable Misstatement $325,000 (TM) Anticipated Misstatement $100,000 (AM) EF = 1.15 Samples Size 32 (n) The sample interval is so the book value is 6,753,764/32 = 211,055.13. The total projected misstatement of the sample is $325,933.98 while the random sampling stared at $154,905.00. The total of the random sampling intervals total $480,467.40. The misstatement that are made in the sample must be calculate by the auditor of both the total projected misstatements in the population and the allowances for the sampling risk to determine the over the limit misstatements. After completing that the UML will then be compared with the TM. The projected misstatement (PM) total will be calculated for each of the logical units containing misstatements. These amounts will be summed to arrive at the PM for the entire population. The projected misstatement will be calculated differently for logical units with book values less than the sampling interval and the logical units with the book values equal to or larger than the sampling interval. The book values that are less than the sampling unit will be the tainting percentage= (book value-audit value) ÷ book value, so therefore the projected misstatement = tainting percentage × sampling interval.

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