AUDIT OF MT HOOD FURNITURE AUDIT OBJECTIVES Determine accuracy of inventory Inventory accurately transcribed to final accumulation and valuation Inventory correctly priced and accumulated Tests to determine correct pricing of Raw materials Work in process Finished goods DETERMINING SAMPLE SIZE Formula N BVxRF TM AMxEF BV Book value of total population 6 753 764 RF Reliability factor 1 TM Tolerable misstatement 325 000 AM Anticipated misstatement 100 000 EF Expansion factor 1 15 N 6 735 764 x 1 00 325 000 100 000 x 1 15 32 16 SCENARIO Incorrect acceptance at 37 Results in Smaller sample size Reliable factor of 1 Expansion factor of 1 5 Sample size is 32 Risk exposure high at 37 RF EF low resulting in lower sample amounts and poor auditing PPS SAMPLE PPS Probability Proportionate Sample A method of sampling for substantive tests that uses attribute sampling theory to express a conclusion in dollar amounts rather than as a rate of deviations Boynton Johnson 2006 p 568 Determine sample size using previous formula Result was a sample size of 32 16 rounded up to 33 Use SI BV n result of 204 659 52 Choose a random dollar amount between 1 204 659 52 to determine first sample Each additional sample determined by adding 204 659 52 to previous sample TESTING CORRECTNESS Pricing of raw material Verify purchase orders Verify invoices to assert both the existence and valuation and allocation of inventory Pricing of work in progress Verifying order competition List of material labor used Verify any work in progress Pricing finished goods Verify inventory was completed Verify cost prices according to proper recoding PROJECTED POPULATION MISSTATEMENT Calculated for each logical unit containing a Totals summed to arrive at PM for entire misstatement population Formulas used Tainting percentage book value audit Projected misstatement tainting percentage value book value x sampling interval Sampling projected misstatement 325 933 98 CONCLUSION Audit sampling required PPS Sample taken Reference Boynton W C Johnson R N 2006 Modern Auditing Assurance Services and the Integrity of Financial Reporting 8th ed John Wiley Sons Inc
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