Question

You are evaluating the results of a nonstatistical sample of 85 accounts receivable confirmations for the Midwayn Company. Information on the sample and population are included below. Tolerable misstatement for accounts receivable confirmation sampling is $ 160,000

		Sample					Population
		# of			Recorded		# of			Recorded
Stratum		Accounts			Value		Accounts			Value
1	> $75,000	8			$1,287,643		8			$1,287,643
2	$10,000 - $74,999	40			1,989,500		257			4,250,225
3	< $10,000	25			99,170		712			926,520
		73			$3,376,313		977			$6,464,388

The confirmation responses were received without? exception, other than the following? items:

Acct.	Recorded	Confirmation
No.	Value	Response		Auditor Follow-up
147	$21,250	$19,940		Customer was charged the wrong price.
228	178,200	155,735		$22,465 shipment recorded on December 30th;
				goods were not shipped until January 3rd.
278	5,895	3,395		Customer sent $2,500 payment on December 29th;
				received on January 2nd.
497	72,652	0		$74,776 shipment made on December 30th;
				goods were received by the customer on
				January 2nd.
564	7,850	6,953		Customer received less than the full quantity ordered.
653	49,871	36,956		$12,915 shipment recorded on December 30th;
				goods were not shipped until January 2nd.
830	3,165	0		$3,165 shipment recorded on December 30th;
				goods were not shipped until January 3rd.

Requirements

a.	Evaluate each of the confirmation exceptions to determine whether they represent misstatements.
b.	Estimate the total amount of misstatement in the accounts receivable population. Ignore sampling risk in the calculation.
c.	Is the population? acceptable? If? not, indicate what? follow-up action(s) you consider appropriate in the circumstances.

Requirement a. Evaluate each of the confirmation exceptions to determine whether they represent misstatements.

Begin by calculating the amount of the? misstatement, if? any, for each account that was received with differences between the recorded value and confirmed response. Then calculate the total misstatements and select what type of misstatement occured for each misstatement.? (If there is no? misstatement, enter a? "0" in the? "Misstatement" column. Enter a description for each account? listed.)

Acct.	Recorded	Confirmation
No.	Value	Response	Misstatement	Description
147	$21,250	$19,940
228	178,200	155,735
278	5,895	3,395
497	72,652	0
564	7,850	6,953
653	49,871	36,956
830	3,165	0

Answer 1

a) Evaluation of each of the confirmation exceptions regarding whether they represent misstatements

Acct.	Recorded	Confirmation
No.	Value	Response	Misstatement	Description
147	$21,250	$19,940	$1310	Pricing Error
228	178,200	155,735	$22465	date cut off error
278	5,895	3,395	$ 0	differnce of timing error
497	72,652	0	$ 0	differnce of timing error
564	7,850	6,953	$897	amount of qunatity unreceived
653	49,871	36,956	$12915	cut off date error
830	3,165	0	$3165	cut off date error

b) Estimation of total amount of misstatements in accounts receivable population :

Stratum	Sample value ($)	Sample misstatements ($)	Book value ($)	projected misstatements ($)
1	1,287,643	22,465	1,287,643	22,465
2	1,989,500	14,225	4,250,225	30,389
3	99,170	4,062	926,520	37,950
Total	3,376,313	40,782	6,464,388	90,804

Projected misstatements for the above :

projected misstatement = sample misstatement x book value /sample value

c) yes, The population is acceptable.

As the total projected misstatements of $90,804 is less than the tolerable misstatements of $160,000.