Question

Sandy, CPA is performing a financial statement audit of AMP, Inc.
Sandy intends to test accounts receivable using the monetary unit
sampling method. Sandy properly calculated her sample size to be
150 and has set a risk of incorrect acceptance equal to 5%.

During testing, Sandy discovered the following five misstatements:

Error Number         Book Value         Audited Amount
     #1                $20,000             $ 7,600
     #2                $11,000             $ 9,240
     #3                $ 5,300             $ 1,060
     #4                $29,000             $ 8,410
     #5                $17,000             $ 9,010

AMP's recorded accounts receivable balance totaled $2,700,000.

Calculate the upper limit on misstatements (ULM).

Answer 1

Answer :

• The Most Likely Error amounts adjusted for Sampling risk.

• The adjustment calculation is not performed on top Stratum misstatement amounts, or on Projected understatements.

• Projected understatements are listed as “0.00” .

• So, they do not affect the Upper Error Limit.

• In the given case, risk of misstatement is 5% that is $4,115

• If the Upper Error Limit is greater than $4,115, the account balance is probably materially misstated.

• You need to decide upon further appropriate steps to meet your audit objective.

• Upper limit on Misstatements ( ULM ) is  Rs 34,320

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