Question

5

The auditors of Landi Corporation wish to use a structured approach to nonstatistical sampling to evaluate the ndihas 12,400 receivable accounts with a total book value of $2,665,000 The auditors have assessed the combined level of inherent and control risk at a moderate level and believe that their other substantive procedures are so limited as to require a "maximum" risk assessment. After considering the overall audit plan, the auditors believe that the test's tolerable misstatement is $61.295. Use Fiqure 9-13 to determine the reliability factor Problem 9-50 Part b Assuming the following results: Number of items in sample 100 Total audited value of sample items $18,000 Total book value of sample itens $18,500 b-1. Use the ratio estimation method to calculate the projected misstatement of the population. (Do not round any division. Round your final answer to 2 decimal places.) Projected misstatement -2. Use the difference estimation method to calculate the projected misstatement of the population Projected misstatement

Answer 1

Solution:

b-1

Projected misstatement of the population = (Sample misstatement / Book Value of sample) x Book value of population

Sample misstatement = Book value of sample items - audited value of sample items

= $ 18,500 - $ 18,000

= $ 500   

Projected misstatement of the population = ($ 500 / 18,500) x 2,665,000

Projected misstatement = $ 72,027.03

b-2

Difference estimation method =

We first find the difference between audit value and book value of the sample = $ 18,500 - $18,000 = $ 500

Then we divide this difference by the number of accounts in the sample to get the average difference = $ 500 / 100 = $ 5

Lastly we multiply this average difference by the number of accounts in the population to get the projected misstatement

Projected misstatement = $ 5 x 12,400 = $ 62,000

Projected misstatement = $ 62,000