The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation

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.

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 $ ________

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.)

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 ValueBook 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 |

The upper misstatement limit:
Customer Name | Tainting Factor | Sampling Interval | Projected Missatatement (columns 2 × 3) | 95% Misstatement Factor or Increment | Upper Misstatement Limit(Columns 2× 3× 5) |
Basic Precision | 1.0 | 23,481 | N/A | 3.0 | $70,443 |
1 | 0.67 | 23,481 | 15732.27 | 1.7 | $26,745 |

Add misstatements detected in logical units greater than the sampling interval |
3 | NA | 23,481 | 75000 | NA | 75000 |
2 | NA | 23,481 | 4000 | NA | 4000 |
Upper Misstatement Limit | $176,188 |

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