1. The auditor will not be performing any other substantive audit procedures.
2. Inherent risk, by firm policy, is assessed at 1.00.
3. Client book value is $9,325,000.
4. Tolerable misstatement is assessed at $215,000.
5. Previous audits have shown an expected error of $45,000 over-statement is reasonable.
a- Calculate the detection risk
b- Calculate (and show the calculation) of the sample selection interval.
c- Assume the auditor rounds the sampling interval down to the next nearest $5,000. Calculate the approximate largest sample size the auditor would expect.
d- The auditor found the following differences when performing the audit work:
BOOK VALUE AUDITED VALUE AUDIT DIFF
32,500 15,000 -17,500 was billed to
wrong Co. for error
55000 20000 - Merchandise was
year end, but credit
was not recorded
until next period.
125000 $??? Incurred 60000
105000 85000 -Dispute on product quality
disputed for 6 months but
500 400 -Credit was supposed to be
issued, but was not.
a- Calculate the most likely error and the upper error limit for accounts receivable
b- Discuss the audit implications, that is, whether the audit work supports book value or whether additional audit work should be recommended, and, if so, the nature of the audit work.
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