Problem

McMullen and Mulligan, CPAs, were conducting the audit of Cusick Machine Tool Company for...

McMullen and Mulligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. Jim Sigmund, senior-in-charge of the audit, plans to use MUS to audit Cusick’s inventory account. The balance at December 31 was $9,000,000.

Required:

a. Based on the following information, compute the required MUS sample size:

Tolerable misstatement = $360,000

Expected misstatement = $90,000

Risk of incorrect acceptance = 5%


b. Nancy Van Pelt, staff accountant, used the sample items selected in part (a) and performed the audit procedures listed in the inventory audit program. She notes the following misstatements:

Using this information, calculate the upper misstatement limit. What conclusion should Van Pelt make concerning the inventory?


c. Assume that, in addition to the four misstatements identified in part (b), Van Pelt had identified the following two understatements:

Calculate the net projected population misstatement.

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