The auditor projects the sample results to the entire population. In this question, an overstatement of $3,700 and an understatement of $200 were found when the auditor sampled 5% of the total population. Projecting the misstatement to the entire population results in $74,000 in overstatements and $4,000 for understatements. Since the total projected misstatement is more than the tolerable misstatement, there is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement.
•5% of total population = 1/20 of total population
•$3,700 overstatement × 20 = $74,000
•$200 understatement × 20 = $4,000
•($74,000 overstatement – 4,000 understatement) – $60,000 = $10,000
Therefore, the projected misstatement exceeds the tolerable misstatement by $10,000.
Another way to calculate the excess overstatement over the tolerable misstatement is by netting the $3,700 overstatement and $200 understatement.
•$3,700 overstatement – $200 understatement = $3,500 net overstatement in the sample
•$3,500 × 20 = $70,000 projected overstatement
•$70,000 – $60,000 = $10,000 excess
Hey guys. I ran across this in the ninja mc.
Do we net the misstatements together?
Does this mean that if I am testing 10 items, and 5 are overstated by 100,000 each, and 5 are understated by 100,000, then the control is working as planned??
Isnt that just a coincidence. What if next year, all 10 are 100,00 overstated?
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Licensed CPA in the state of Michigan
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