Chang, CPA, performed a nonstatistical sampling plan to examine the inventory ba

Question

Chang, CPA, performed a nonstatistical sampling plan to examine the inventory balances of PHD, Inc. In selecting her sample of 35 items, she used an expected misstatement of $20,000 and a tolerable misstatement of $32,000. The account balance consisted of 525 items totaling $600,000. The sample recorded value was $40,000, and the audited value was $38,000. What conclusion did Solo draw regarding the account balance?

A) Conclude that the account balance is fairly stated because the difference between the recorded balance and audited balance is less than the tolerable misstatement.

B) Conclude that the account balance is not fairly stated because the difference between the recorded balance and audited balance is greater than the expected misstatement.

C) Conclude that the account balance is fairly stated because the difference between the recorded balance and audited balance is less than the expected misstatement.

D) Conclude that the account balance is not fairly stated because the difference between the recorded balance and audited balance is greater than the tolerable misstatement.

Explanation / Answer

A) Conclude that the account balance is fairly stated because the difference between the recorded balance and audited balance is less than the tolerable misstatement.

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