L12 Notes_Part_3 - is materially misstated , and 3....

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Before PPS: Stratification & Point Estimate Stratum Stratum Criteria N Dollars in pop’n n Recorded Value Audited Value Client Error 1 >$10,000 3 $88,955 3 $88,955 $91,695 <$2,740> 2 $5M-$10M 10 $71,235 6 $43,995 $43,024 971 3 <$5,000 27 $47,105 6 $13,105 $10,947 $2,158 40 $207,295 15 $146,055 $145,666 $389 Client Error X Recorded Bk. Value = Point Recorded Value from Sample from Statum Estimate 1. $2,740/ $88,955 X $88,955 = <$2,740> 2. 971/43,995 X $71,235 = 1,572 3. 2,158/13,105 X $47,105 = 7,757 $6,589 Not just amount but also risk (e.g., aged A/R)
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Substantive Test of Details of Balances Determining Sample Size When testing balances, use these terms 1. Materiality: T olerable M isstatement (TM) , maximum estimated amount of error leading to a clean opinion 2. Risk: A cceptable R isk of I ncorrect A cceptance (ARIA), the risk that the auditor is willing to take of concluding that the account balance is not materially misstated when, in fact, it
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Unformatted text preview: is materially misstated , and 3. Expectation: A nticipated M isstatement (AM), estimated amount of dollar error suggested by a preliminary sample or last years workpapers). Monetary-Unit Sampling (MUS) Advantages of MUS 1. Smaller sample sizes: When the auditor expects no misstatement, MUS usually results in a smaller sample size than classical variables sampling. 2. Dont need an estimate of standard deviation: The calculation of the sample size and evaluation of the sample results are not based on the variation between items in the population. 3. Increases likelihood of selecting larger items: easier than stratifying 4. Can reduce costs: Several sampled dollars can be tested by reviewing one document 5. As easy to use as attribute sampling 6. better than attribute sampling which expresses results in terms of number of errors; MUS expresses errors in dollar terms....
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L12 Notes_Part_3 - is materially misstated , and 3....

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