McMullen and Milligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. Jim Sigmund, senior-in-charge of th audit, plans to use MUS to audit Cusick's invenotry account. Thee 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: Misstatement Number Book Value Audit Value 1 $10,000 $7,500 2 $9,000
McMullen and Milligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. Jim Sigmund, senior-in-charge of th audit, plans to use MUS to audit Cusick's invenotry account. Thee balance at December 31 was $9,000,000.
Required:
A) Based on the following information, compute the required MUS
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
Misstatement Number Book Value Audit Value
1 $10,000 $7,500
2 $9,000 $6,000
3 $60,000 0
4 $800 $640
Using this information, calculate the upper misstatement limit. What conclusion shoudl 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:
Misstatement Number Book Value Audit Value
5 $6,000 $6,500
6 750 800
Calculate the net projcted population misstatement.
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