Question

According to AS 2315, “The auditor should project the misstatement results of the
sample to the items from which the sample was selected.” Assume the population of an
account balance included 1,200 items. The auditor tested 80 items and discovered
$2,900 in errors. Following the example in AS 2315.26, project the sample misstatement
to the population. If your materiality threshold were $45,000 for this specific account,
would you accept the balance as fairly stated? Explain.

Answer 1

An auditor may have selected a sample of 80 items from a population containing 1200 items. If he discovered overstatements of $2900 in that sample, the auditor could project a $43,500 overstatement by dividing the amount of misstatement in the sample by the fraction of total items from the population included in the sample. The auditor should add that projection to the misstatements discovered in any items examined 100 percent. This total projected misstatement should be compared with the tolerable misstatement for the account balance or class of transactions, and appropriate consideration should be given to sampling risk. If the total projected misstatement is less than tolerable misstatement for the account balance or class of transactions, the auditor should consider the risk that such a result might be obtained even though the true monetary misstatement for the population exceeds tolerable misstatement. . On the other hand, if the total projected misstatement is close to the tolerable misstatement, the auditor may conclude that there is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement. An auditor uses professional judgment in making such evaluations.