Assume a mean-per-unit estimation variables sampling application with a tolerable misstatement of $70,000 and a book value of $700,000.After performing the sampling plan,the auditors calculated an allowance for sampling risk of $45,000 and a point estimate of the population's total audited value to be $650,000.Based on these results,the auditor would:
A)Conclude that the population does not contain a material misstatement,because the tolerable misstatement exceeds the allowance for sampling risk.
B)Conclude that the population does not contain a material misstatement,because the total audit value plus or minus tolerable misstatement includes the book value.
C)Conclude that there is too great a risk that the account balance is materially misstated,because the tolerable misstatement exceeds to the projected misstatement.
D)Conclude that there is too great a risk that the account balance is materially misstated,because one limit of the interval calculated by projected misstatement + or - allowance for sampling risk exceeds the tolerable misstatement.

Question

Quizplus · Accepted Answer

The correct answer is D because the point estimate of the population's total audited value is $650,000, which is $50,000 less than the book value of $700,000. This $50,000 is the projected misstatement. When you add the allowance for sampling risk of $45,000 to this projected misstatement, you get a potential misstatement of $95,000, which exceeds the tolerable misstatement of $70,000. This indicates a high risk that the account balance could be materially misstated.

Assume a Mean-Per-Unit Estimation Variables Sampling Application with a Tolerable