Assume you are planning the confirmation of accounts receivable. There are 2,000 customer accounts with a total book value of $5,643,200. Tolerable misstatement is set at $200,000, and expected misstatement is $40,000. The risk of incorrect accep- tance is 30%. The ratio of expected to tolerable misstatement is 20%, and the ratio of tolerable misstatement to the population is 3.5%.
Based on the information above, assume that your sampling interval is $100,000.
a. What is your statistical conclusion if no misstatements are found in the sample? Is the account balance acceptable? Explain.
b. Calculate the total estimated misstatement assuming the following misstatements are found in the sample:
|
Misstatement Number
|
Book Value
|
Audit Value
|
|
1
|
$210,000
|
$208,000
|
|
2
|
9,000
|
8,910
|
|
3
|
15,000
|
14,250
|
c. Do these results indicate that the account balance, as stated, is acceptable? Explain.
d. If the results are not acceptable, what courses of action are available to the auditor?