L12 Notes_Part_9 - Upper Misstatement Basic Precision 1.00...

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Steps in MUS Sampling Application Misstatements Detected In the sample of 93 items the following misstatements were found: Customer Book Value Audit Value Difference Tainting Factory Good Hospital 21,893 $ 18,609 $ 3,284 $ 15% Marva Medical Supply 6,705 4,023 2,682 40% Axa Corp. 32,549 30,049 2,500 NA Learn Heart Centers 15,000 - 15,000 100% $3,284 ÷ $21,893 = 15% Because the Axa balance of $32,549 is greater than the interval of $26,882, no sampling risk is added. Since all the dollars in the large accounts are audited, there is no sampling risk associated with large accounts.
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Steps in MUS Sampling Application Compute the Upper Misstatement Limit We compute the upper misstatement limit by calculating basic precision and ranking the detected misstatements based on the size of the tainting factor from the largest to the smallest. Customer Tainting Factor Sample Interval Projected Misstatement 95% Upper Limit
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Unformatted text preview: Upper Misstatement Basic Precision 1.00 26,882 $ NA 3.0 80,646 $ Learn Heart Centers 1.00 26,882 26,882 1.75 (4.75 - 3.0) 47,044 Marva Medical 0.40 26,882 10,753 1.55 (6.3 - 4.75) 16,667 Good Hospital 0.15 26,882 4,032 1.46 (7.76 - 6.3) 5,887 Add misstatments greater that the sampling interval: Axa Corp. NA 26,882 NA 2,500 Upper Misstatement Limit 152,744 $ (0.15 × $26,882 × 1.46 = $5,887) Steps in MUS Sampling Application Evaluation 6. Calculate the projected misstatement and the upper limit on misstatement 7. Draw final conclusions. We compare the tolerable misstatement to the upper misstatement limit. If the upper misstatement limit is less than or equal to the tolerable misstatement, we conclude that the balance is not materially misstated . In our example, the final decision is whether the accounts receivable balance is materially misstated or not....
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This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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L12 Notes_Part_9 - Upper Misstatement Basic Precision 1.00...

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