Question

17-31 (Objective 17-3) In the audit of Price Seed Company for the year ended September 30, the auditor set a tolerable misstatement of $50,000 at an ARIA of 10%. A PPS sample of 100 was selected from an accounts receivable population that had a recorded balance of $1,975,000. The following table shows the differences uncovered in the confirmation process: Accounts Receivable per Records Accounts Receivable per Confirmation Follow-up Comments by Auditor 1. $ 2,728.00 $ 2,498.00 Pricing error on two invoices. 2. $ 5,125.00 -0- Customer mailed check 9/26; company received check 10/3. 3. $ 3,890.00 $ 1,190.00 Merchandise returned 9/30 and counted in inventory; credit was issued 10/6. 4. $ 791.00 $ 815.00 Footing error on an invoice. 5. $ 548.00 $ 1,037.00 Goods were shipped 9/28; sale was recorded on 10/6. 6. $ 3,115.00 $ 3,190.00 Pricing error on a credit memorandum. 7. $ 1,540.00 -0- Goods were shipped on 9/29; customer received goods 10/3; sale was recorded on 9/30. Required a. Calculate the upper and lower misstatement bounds on the basis of the client misstatements in the sample. b. Is the population acceptable as stated? If not, what options are available to the auditor at this point? Which option should the auditor select? Explain.

Answer 1

1.Even though there is a pricing error of $230 on the invoices there does not seem to be any communication to that effect. The issue is : Is there a common error of this type?

2. Even though subsequently paid, the customer must confirm

3.Yet again a difference in what records show and what customer confirms $2700 difference customer states less

4.Yet again $14 difference in confirmation customer states more

5. Again a difference in confirmation customer confirming $ 489 more

6. again $ 75 less claimed by customer

7. customer not confirmed but sale of goods confirmed for 10 days later

a. Upper lower limits were exceeded

b. Population limites not acceptable

c. Auditor must reject and get explanations and not zccept sample as every item has errors