Question

Scott Duffney, CPA, has randomly selected and audited a sample of 100 of Will-Mart’s accounts receivable. Will-Mart has 3,000 accounts receivable accounts with a total book value of $3,700,000. Duffney has determined that the account’s tolerable misstatement is $950,000.

His sample results are as follows:

Average Audited Value	$1,230
Average Book Value	$1,238

Calculate the accounts receivable estimated audited value and projected misstatement using the: (Do not round your intermediate calculations and round your final answer to nearest whole dollar.)

	Estimated-Audit Value	Projected Misstatement
Mean-per-unit Method	$3,690,000	$10,000
Ratio Method	?	?
Difference Method	?	?

I know the mean-per-unit method is correct but have been struggling with the ratio method and difference method.

Answer 1

1)

Mean per unit method

=1230(Average audit value *3000 accounts

=$3690000 estimated audit value

Projected misstatement = Client’s book value – Estimated audited value

                                            = $3700000-$3690000

                                           = $10000

2)

Ratio method

Sample net misstatement / Book value of sample*Population book value

So, Sample net misstatement = 100*(1230-1238)

                                                     = -$800

Book value of sample = 100*$1238

                                      = $123800

Projected misstatement = (-$800 / $123800)*$3700000

                                           = $23909.5332 overstatements

Estimated audit value = Book value- Projected overstatement

                                       = $3700000-$23909.5332

                                      = $3676090.47

3)

The projected misstatements by using difference estimation:

Projected misstatements = (Sample net misstatement/Sample items)*Population items

                                             = (-$800/100)*3000

                                            = $24000 overstatement

Estimated audit value = Book value-Projected misstatements

                                   = $3700000-$24000

=$3676000