Question

AP10.8 (LO 8) Challenging Evaluating a PPS sample Assume the following misstatements were found in a PPS sample: Sample Item Book Value Audit Value $ 650 $ 585 540 1,900 2,200 2,800 1,650 2,660

1. If a risk of incorrect acceptance of 15% is specified in the sample design, the sampling interval is $2,000, and five misstatements are found as enumerated above, calculate:

• Basic precision.
• The incremental allowance for sampling risk.
• The upper misstatement limit.

2. If tolerable misstatement were $50,000 and expected misstatement were $10,000, what conclusion would you reach based on your results in above?

Answer 1

- Answer 0 poojected misstatoment when Sampling intowal 98 $ 1,800 93 $4570 * projected misstatement when Sampling interval 98 $ 8000 98 $4,890 * Besic precision = $17,000 → Incremetal allow ance for sample risk - $ 1628 * Upper limit on misstatement = $23, 318 Scanned with CamScanner

* a Exploration is in the image Sampling interwal - $ 200 Bample Book Malue projected misstatement Audit Value misstatement Tainds internal 585 200 660 2000 540 1900 9000 1650 22200 550 27800 2660 HO → project misstabennent =4890 csa project misstatement when Sampling

→ Enterual is $ 8000 98 $ 480 Tainis -audit volle Book value projected misstatement = Taint valle → → Sample internal Taint value os calculated foo those whose Book value is less than the Sampling interual. Basic precision Sampling interval = $2000 → By cusing pps Samping table, where risk of in Coscect acceptance is 15% E number of miss tatements is fre, the reliability factor 138.5 Busec precision = (Reliability facto) x (sampling interval) Basic precision = 8.5 X $3000 Basic predsion = $ 17,000 Scanned with CamScanner

Incremental allowance for sampling risk Fiostly Scanting mistatement from highest to lovest for sample which are less than the sampling internal of 2000 According to sank. Andlit Reliability Increment Inse mont Book value poajected misstatenent value I factor increment allowance 119 2800 0.9 2200 1.9 0 o 3.38 1.418 1900 44.78 0.48 650 0.34 540 6.02 0.3 Scanned with CamScanner

Incremental allowance for samping - 11699 Opsk The above sceltability of according to 15% ofk of incorrect acceptance for Number of misstatement as geven in table from source above. © * upper limit on miestate ment = projected misstatement + Balic precision +incremental af given Sampling stisk = $4890+$17000+ $1628 = $23618 If holesale misstatement 98 $ 50,000 then, the pps audit Sampling should be accepted as apper limit limit on misstatement 98 $ 23,588 which is less than tolerable misstatement. Scanned with CamScanner