Problem
While substantively testing the client's accounts receivable balance of $4,000,000, the auditor selected a sample of individual accounts for positive confirmations. The auditor sent out (and received back) 40 confirmations. The book value of the 40 accounts sampled totaled $10,000 and the auditor determined that tolerable misstatement for accounts receivable was $200,000. After evaluating the sample results, the auditor determined that the sample had an aggregate value of $9,650.
Task
i. What is the projected misstatement as determined by the sample results?
ii. If the auditor determined that the allowance for sampling risk was $50,000 and the tolerable misstatement was set at $200,000, determined (and show your support) whether the auditor would conclude whether accounts receivable is fairly stated or not.