Case study wk. 1 | Accounting homework help

   

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a. Use IDEA to determine the necessary sample size, given the preceding parameters.

b. Assume that your audit team has decided to  increase their reliance on internal control and permit a corresponding  increase in the risk of incorrect acceptance from 10 percent to 15  percent, which maintains overall audit risk at the same level. What is  the necessary sample size, holding all other factors constant?

c. Assume that your audit team has decided to reduce  the level of tolerable misstatement from $311,711 to $233,783 (or 6  percent of the recorded balance of the transactions). What is the  necessary sample size, holding all other factors constant?

d. Assume that based on additional controls  implemented by ELM, your audit team has decided to reduce the expected  misstatement from $77,928 to $19,482 (0.5 percent of the recorded  balance of the transactions.) What is the necessary sample size, holding  all other factors constant?

 

Required information

Elm Manufacturing Company (ELM) is a small manufacturer of back  packs located in Rochelle, Illinois. Your audit team is conducting  substantive tests of sales made to customers on account and will select a  sample of transactions and confirm them with customers. You have access  to ELM’s electronic records (via the “Sales 2017 – 4th Quarter” dataset  provided below).  Detailed information about ELM, instructions for  accessing datasets, a data directory for data sets, and a detailed  monetary unit sampling example (with IDEA screenshots) can be found  below.

NOTE: The Sales 2017–4th Q data set  contains a total of 410 transactions; of these, invoices have been  prepared for the first 362 transactions (through Order No. 17357). You  should use the INVAMT (which represents the amount of the sale prior to  any discount) as the monetary unit from which to sample.

In selecting and evaluating the samples, select the following options:

  • For extraction type, select “Fixed interval selection.”
  • For high values handling, select “High values in database.”
  • For evaluation, select “Stringer bound.”

Required Data Files:

Module G ELM Files (click to download a .zip file)

Module G Exercises G.65 to G.66 Student Step Guide

Module G Exercise G.67 Student Step Guide

Module G Exercise G.68 Student Step Guide

rev: 11_10_2017_QC_CS-105250

 

Assume that your audit team has established the following parameters for the examination of ELM’s sales transactions:

        Risk of incorrect acceptance 10%   Tolerable misstatement $311,711 (or 8% of the recorded balance of the transactions)   Expected misstatement $77,928 (or 2% of the recorded balance of the transactions)        

Required:

Using IDEA, answer the following questions by supplying the required information. (Enter your answers exactly as they appear in IDEA.)

Note: Parts (b), (c), and (d) are independent scenarios that affect sample size in this example.

a. Use IDEA to determine the necessary sample size, given the above parameters.

b. Assume that your audit team has decided to  increase their reliance on internal control and permit a corresponding  increase in the risk of incorrect acceptance from 10 percent to 15  percent, which maintains overall audit risk at the same level. What is  the necessary sample size, holding all other factors constant?

c. Assume that your audit team has decided to reduce  the level of tolerable misstatement from $311,711 to $233,783 (or 6  percent of the recorded balance of the transactions). What is the  necessary sample size, holding all other factors constant?

d. Assume that based on additional controls  implemented by ELM, your audit team has decided to reduce the expected  misstatement from $77,928 to $19,482 (0.5 percent of the recorded  balance of the transactions.) What is the necessary sample size, holding  all other factors constant?

e. Based on your results in parts (b), (c), and (d), determine the relationship between various parameters and sample size.

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