Question

MUST USE EXCEL EQUATIONS

Daily and Johnson, CPAs were conducting the audit of GarnerTool Supply for the year ended December 31. Cindy Steward, senior-in-charge of the audit, plans to use MUS to audit Garner's inventory account. The balance in the inventory account at December 31 was $8,000,000.

Requirements:

a) Based on the information in the spreadsheet, calculate the requiredMUS sample size and sampling interval

b) Steve Brents, staff accountant, used the sample items selected in part (a) and performed the audit procedures listed in the inventory audit program. He noted the misstatements show in the spreadsheet in part (b). Using the information, calculate the upper misstatement limit.

c) Based on the results in part (b) What is the conclusion that Steve Brents should make concerning the inventory account balance?

MUST USE EXCEL EQUATIONS

1 Auditing Chapter 9 Statistical Problem 3 Requirement (a) 4 Account Balalnce ,000,000 400,000 160,000 5% 5 Tolerable Misstatement 6 Expected Misstatement 7 Risk of Incorrect Acceptance 9 Sample Size 10 Sampling Interval 12 Requirement (b) 13 14 15 16 17 18 19 Book Value Audit Value Error Number 1 Error Number 2 Error Number 3 Error Number 4 13,500 9,000 65,000 1200 2400 6000 640 20 21 23 24 Requirement (c) 25 Conclusion 26 27 29

Answer 1

MUS SAMPLE SIZE = Confidence Factor × (PV/TM) PV = POPULATION VALUE TM =TOLERABLE MISSTATEMENT

PV = 8000000 = B4

TM = 400000 =B5

EM = 160000 =B6

Determine the Confidence Factor from the MUS sampling table
Ratio of Expected-to-Tolerable Misstatement (EM/TM) = 160000/400000 = 0.4 (CELL B6/B4)

Match to the Confidence Level of 95% (i.e.5% Risk of Incorrect Acceptance CELL B7)

MUS confidence factor = 8.09

SAMPLE SIZE=8.09 * (B4/B5)

= 161.8

= 162 ROUND UP.

SAMPLING INTERVAL = POPULATION VALUE / SAMPLE SIZE

=B4/162

=8000000/162=

=49383$