Question

9-22. The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation for the fiscal year ended October 31. Michelle Le, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Coomes’ inventory account. The balance in the inventory at October 31 was $4,250,000. Michelle has established the following: risk of incorrect acceptance = 5% (i.e., the desired confidence level of 95%), tolerable misstatement = $212,500, and expected misstatement = $63,750.

1. Calculate the sample size and sampling interval.
2. Hon Zhu, staff accountant, performed the audit procedures listed in the inventory audit program for each sampling item. Using the sample size computed in part (a), calculate the upper limit on misstatement based on the following misstatements. What should Hon conclude about Coomes’ inventory account?

   Error Number	Book Value	Audit Value
   1	$6,000	$1,000
   2	$24,000	$9,000
   3	$55,000	$5,000

Answer 1

Here is my Answer ofr the above question

1. Calculation of Sample size and Sampling intervel

Sample Size=

Population size = 4250000(N)

Critical value at confidence level of 95%= 1.96(Z)

margin of error= 5% or 0.05(e)

Assume sample praportion uncertain = 0.05

sample size= N *(Z² *p*(1-p)/e² ) /N-1+(Z² *p*(1-p)/e² )

= 4250000*(3.8416*0.05*0.05)/0.0025)/4250000-1(3.8416*0.05*0.05)/0.0025)

=425000*3.8416/16326800-3.8416

=16326800/16326796=1

that means we need to check each and every one

Samplining intervel is also 1 we need to check each and every one

2.

book value Audit value overstatement Tainting

$6000 $1000 $5000 83.33%

$24000 $9000 $15000 62.5%

$55000 $5000 $50000 90.9%

Because the total tainting percentage of 236.73% is more than 95.1%, you can conclude that the amounts in the sample field as a whole are materially misstated, for your specified confidence level.