Using statistical sampling to assist in verifying the year-end accounts payable balance, an auditor has accumulated the following data:

Projecting the misstatement to the population, the auditor's estimate of year-end accounts payable balance would be:
A) $5,050,000.
B) $5,125,000.
C) $6,000,000.
D) $6,150,000.

Question

Using statistical sampling to assist in verifying the year-end accounts payable balance, an auditor has accumulated the following data:

Projecting the misstatement to the population, the auditor's estimate of year-end accounts payable balance would be:
A) $5,050,000. 
B) $5,125,000. 
C) $6,000,000. 
D) $6,150,000.

Quizplus · Accepted Answer

The auditor's point estimate of the year-end accounts payable balance is:

Total value of the sample = $175,000
Sample size = 35
Average of the sample = $175,000 / 35 = $5,000

Therefore, the auditor's point estimate of the year-end accounts payable balance is $5,000.

To project the misstatement to the population, the auditor can use the following formula:

Projected misstatement = Point estimate x (1 - Confidence level) x (Taint / √Sample size)

Where:
- Confidence level = 95%
- Taint = Upper misstatement limit - Point estimate = $500 - $0 = $500

Plugging in the numbers, we get:

Projected misstatement = $5,000 x (1 - 0.95) x ($500 / √35) ≈ $1,150

The projected misstatement represents the auditor's best estimate of the likely misstatement in the population based on the sample results. To estimate the year-end accounts payable balance, the auditor adds the projected misstatement to the point estimate:

Year-end accounts payable balance = Point estimate + Projected misstatement = $5,000 + $1,150 = $6,150

Therefore, the best choice is C, $6,000,000.

Using Statistical Sampling to Assist in Verifying the Year-End Accounts