[xibadx]

– When considering overstatement/understatements in the sample, are they netted to compare against the tolerable misstatement in the population. Ex: $60k tolerable. Sample size 5%. Overstatement: 3700 Understatement: 200. Someone told me to net it (i.e. 3500) multiplied by 20. but that doesn’t make sense. A misstatement is a misstatement. Thoughts?

– IFAC states to apply safeguards in accepting contingent fees? But as far as I’m aware, PCAOB is strictly against contingent fees, no exceptions. What about ASB (SAS)?

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[soxfan866]

I know the exact question you're talking about for the first one. What you were told is correct. You net the misstatements to $3,500 and then multiply by 20 (since 5% or every 20th item was selected). That gives you a projected misstatement of $70,000, which is greater than the tolerable misstatement of $60,000. You are sampling to determine the likelihood of the population being materially misstated and in this case there is a significant chance the population is materially misstated because your projected misstatement is greater than the tolerable misstatement. Simply put, the result is probably more work for the auditor on this account to make sure it's fairly stated.

Not sure about IFAC and contingent fees, but all the standards presented in that chapter are VERY similar. I think for SAS contingent fees are only acceptable when the CPA is representing a client in court (IRS private letter rulings comes to mind as a common one).

[Author]

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