Task 5: Dollar-unit sampling Accounts receivable (24 marks)

    1. To test existence and help assess valuation of accounts receivable, you have used dollar-unit sampling to select a sample of account balances for confirmation. Total accounts receivable at year end amounted to 1,200 accounts, totalling $1,750,000. You used an ARIA of 5% and tolerable misstatement of $35,000, and estimated the likely misstatement in the population to be $4,375. What is the minimum sample size for this test? (Use Exhibit 6.5-1 in Topic 6.5.) (4 marks)
    2. You selected 200 balances for confirmation and found two errors in the customer responses. The first was an item with a recorded value of $260,000 and an audited value of $257,400; the second was an item with a recorded value of $95,000 and an audited value of $93,575. Determine the (unadjusted) upper error limit (upper bound) for the audit of accounts receivable, at 5% ARIA. (Use Exhibit 6.6-1 in Topic 6.6 to calculate the precision increment.) (8 marks)

Note: Round any dollar amounts to the nearest dollar.

  1. Determine the likely aggregate misstatement overstating accounts receivable and the associated sampling risk. (4 marks)
  2. What options are available to you if the upper error bound exceeds the tolerable error amount for the population? (8 marks)

Task 6: Attributes sampling Paid invoices (12 marks)

  1. You wish to test whether invoices for purchases are supported by receiving reports before payment using attribute sampling. The sample is to be drawn from paid invoices for inventory purchases. You have decided to use the following parameters for this test: ARO of 5%; TDR of 9% and an expected population deviation rate of 0.75%. Determine the minimum sample size for the test based on the assumptions provided. (Use Exhibit 6.5-1 in Topic 6.5.) (3 marks)
  2. You select a sample of 75 items and find four invoices which were paid, despite having no receiving report attached. Determine the computed upper deviation rate and state the audit conclusion based on your sample results. (Use Exhibit 6.6-1 in Topic 6.6.) (5 marks)
  3. Describe two options available to you if the upper deviation rate is greater than the tolerable deviation rate. (4 marks)