I need help with this Auditing assignment on Performing an Audit. It needs to be a completely original document of 1-2 pages. Below is the assignment information:
You are the auditor for a company and need to review the company’s accounts receivable using probability proportional to size (PPS) sampling. In addition, the board of directors has requested that you and your team present an explanation of your PPS process at its next monthly meeting.
Individual Portion:
Use the following company data and the PPS Sampling Tables 1 & 2:
- The recorded book value of these accounts is $3,460,000.
- The company has a tolerable error of $63,460.
- The anticipated error is $13,000.
- The risk of incorrect acceptance is 5%.
- The acceptable number of overstatements of misstatements is 2.
Use probability proportional to size (PPS) sampling to do the following:
- Determine the reliability factor.
- Determine the correct expansion factor.
- Determine the sample size you should use.
- Determine the sampling interval you should use.
Below is the PPS Sampling Tables 1 & 2:
Table 1: Reliability Factors for Misstatements of Overstatement
|
Number of Overstatement Misstatements |
Risk of Incorrect Acceptance |
||||||||
|
1% |
5% |
10% |
15% |
20% |
25% |
30% |
37% |
50% |
|
|
0* |
4.61 |
3.00 |
2.31 |
1.90 |
1.61 |
1.39 |
1.21 |
1.00 |
0.70 |
|
1 |
6.64 |
4.75 |
3.89 |
3.38 |
3.00 |
2.70 |
2.44 |
2.14 |
1.68 |
|
2 |
8.41 |
6.30 |
5.33 |
4.72 |
4.28 |
3.93 |
3.62 |
3.25 |
2.68 |
|
3 |
10.05 |
7.76 |
6.69 |
6.02 |
5.52 |
5.11 |
4.77 |
4.34 |
3.68 |
|
4 |
11.61 |
9.16 |
8.00 |
7.27 |
6.73 |
6.28 |
5.90 |
5.43 |
4.68 |
|
5 |
13.11 |
10.52 |
9.28 |
8.50 |
7.91 |
7.43 |
7.01 |
6.49 |
5.68 |
|
6 |
14.57 |
11.85 |
10.54 |
9.71 |
9.08 |
8.56 |
8.12 |
7.56 |
6.67 |
|
7 |
16.00 |
13.15 |
11.78 |
10.90 |
10.24 |
9.69 |
9.21 |
8.63 |
7.67 |
|
8 |
17.41 |
14.44 |
13.00 |
12.08 |
11.38 |
10.81 |
10.31 |
9.68 |
8.67 |
|
9 |
18.79 |
15.71 |
14.21 |
13.25 |
12.52 |
11.92 |
11.39 |
10.74 |
9.67 |
|
10 |
20.15 |
16.97 |
15.41 |
14.42 |
13.66 |
13.02 |
12.47 |
11.79 |
10.67 |
|
*The 0 row is always used for the reliability factor in the sample size formula and for basic precision. |
|||||||||
(Whittington & Pany, 2006)
Table 2: Expansion Factors for Expected Misstatement
|
|
Risk of Incorrect Acceptance |
||||||||
|
1% |
5% |
10% |
15% |
20% |
25% |
30% |
37% |
50% |
|
|
Factor |
1.9 |
1.6 |
1.5 |
1.4 |
1.3 |
1.25 |
1.2 |
1.15 |
1.0 |
(Whittington & Pany, 2006)
