a. Explanation In order to determine the sample size and auditor needs to consider following inputs: Tolerable misstatement: This is the value up to which financial statements may be misstated as a whole without affecting the opinion of the auditor, when the tolerable misstatement level is low, the auditor needs to compensate for the same by applying more audit procedures and selecting larger sample size. In the given case, the level is set at $ 275,000. Population dollar value: This is the overall value of the population, which is required to be audited, ratio of this value combined with tolerable misstatement value determines the maximum scope of error with in which the auditor needs to operate. In the given case, the ratio is set out to be 4.3% and the value of inventory is $ 8,124,998.66. Risk of incorrect acceptance: It is the risk which indicates expression of wrong opinion in the audit report with regards to reliability of the financial statements, when the risk of incorrect acceptance is low, sample size must be increased in order to ensure that risk is reduced, in the given case, the risk is set at 10 %. Expected misstatement: This is the value of misstatement with in the population which the auditor expects to occur, if the expected misstatement is large, more sample size needs to be selected to reduce the scope of misstatement, in the given case, the value is given as $ 80,000... b. To determine To calculate: Total estimated misstatements.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN: 9781305080577

Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher: South-Western College Pub

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Chapter 8, Problem 58RSCQ

To determine

To calculate: Sample size and sample interval.

To determine

To calculate: Total estimated misstatements.

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Chapter 8, Problem 57RSCQ

Chapter 8, Problem 59RSCQ

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Auditing: A Risk Based-Approach to Conducting a Quality Audit

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