You have been assigned the task of testing the accuracy of the final inventory compilation for Mt. Hood Furniture. You may assume that you have separately observed the inventory and that you are satisfied that the inventory was accurately counted. However, you need to test that quantities were accurately transcribed to the final accumulation and valuation of inventory and that the inventory is correctly priced and accumulated. The table beginning on page 617 presents the audited values associated with Mt. Hood%u2019s pricing and accumulation of all items in inventory.
$5,600,000 is the Book Value you will need
Required Portion:
1. Identiy the audit objectives that are accomplished by this test.
2. Determine sample size based on the following audit judgements.
a. Tolerable misstatement is assess at #235,000.
b. The risk of incorrect acceptance is assessed at 37 percent.
c. Anticipated misstatement is assessed at $100,000.
3. Develop a scenario that is consistent with setting te risk of incorrect acceptance at 37 percent,
4. Select a PPS sample of the above inventory population using the sample size determined in (2) above.
5. Explain the tests that you would perform to test the correctness of pricing of aw materials, work in progress, and finished goods
6. Determine the amount of projected population misstatement based on your sample.
7. Considering your quantitative and qualitative results, develop a statistical conclusion.