# ACC 491 Week 5 Team Assignment Audit Sampling Case Memo

May 8th, 2015
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ACC 491 Week 5 Team Assignment Audit Sampling Case Memo

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AUDIT OF MT. HOOD FURNITUREAUDIT OBJECTIVESDetermine accuracy of inventory Inventory accurately transcribed to finalaccumulation and valuation Inventory correctly priced andaccumulatedTests to determine correct pricing of: Raw materials Work in process Finished goodsDETERMINING SAMPLE SIZEFormula: N=BVxRF/TM-(AMxEF) BV= Book value of total population(\$6,753,764) RF= Reliability factor (1) TM= Tolerable misstatement (\$325,000) AM=Anticipated misstatement (\$100,000) EF=Expansion factor (1.15)N=\$6,735,764 x 1.00/\$325,000 (\$100,000x 1.15) = 32.16SCENARIOIncorrect acceptance at 37%Results in: Smaller sample size Reliable factor of 1 Expansion factor of 1.5Sample size is 32Risk exposure high at 37%, RF & EF low,resulting in lower sample amounts and poorauditingPPS SAMPLEPPS = Probability Proportionate SampleA method of sampling for substantive tests that usesattribute sampling theory to express a conclusion indollar amounts rather than as a rate of deviations,(Boynton & Johnson, 2006, p. 568)Determine sample size using previous formulaResult was a sample size of 32.16, rounded up to 33Use SI=BV/n, result of \$204,659.52 Choose a random dollar amount between 1 &\$204,659.52 to determine first sample Each additional sample determined by adding\$204,659.52 to previous sampleTESTING CORRECTNESSPricing of raw material

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