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You have been charged to perform test controls over Accounts Receivables

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Question;You have been charged to perform test controls over Accounts Receivables. You have selected PPS sampling method because it automatically results in stratified sample. You computed the sample size, using the risk of incorrect acceptance, the total recorded amount of receivables and the number of misstated accounts allowed and divided the total recorded book amount of receivables by the sample size in order to determine a sampling interval. You have calculated the sample size to be 60 and the sampling interval to be $10,000. given this, only 50 different accounts were selected because several of the accounts were so large that the sampling interval caused each of them to be selected twice. Given the results you sent 55 confirmations. Three of the selected accounts your sample had balances under $20 and so you decided not to send them confirmations, and three had negative balances. Instead you substituted the three largest accounts that had not been selected in the sample. Each of these accounts had a balance greater than $7,000. The results of the confirmations revealed two differences. One difference showed an audit amount of $3,000 but had been recorded as $4,000. Therefore, you projected this to be a $1,000 misstatement the other account had an audit in amount of $2,000 but had been recorded at $1,900. You did not count the $100 difference because the purpose of the test was to detect overstatements.Therefore your valuation states that the Accounts Receivable balance was not overstated because the projected misstatement was less than the allowance for sampling risk.Required:Discuss each incorrect assumption, statement and/are inappropriate application of the above sampling procedure. At least 4 incorrect assumptions/statements are required.

 

Paper#39917 | Written in 18-Jul-2015

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