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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

In a substantive test of receivables at Corvin Co, book value of the population is $2,000,000 and the sample tested has a book value of $400,000. Overstatements of $6,000 are found in the sample. Tolerable misstatement is $50,000. There are no other errors. Which statement is correct about the projected misstatement?

Projected misstatement is $30,000, found by multiplying the $6,000 sample error by the factor of five (population $2m over sample $400,000). It is below the $50,000 tolerable misstatement, but the auditor must still weigh sampling risk before concluding the population is not materially misstated.

  1. AProjected misstatement is $30,000, which is below tolerable misstatement, but sampling risk must still be consideredCorrect
  2. BProjected misstatement is $6,000 and no extrapolation is required
  3. CProjected misstatement is $30,000, which exceeds tolerable misstatement
  4. DProjected misstatement is $12,000 because the sample covers 20% of the population

Explanation

The sample covers 20% of the value, so the ratio is 5 times. Projected misstatement is $6,000 x (2,000,000 / 400,000) = $30,000. This is below $50,000 but the auditor must consider whether sampling risk means the true misstatement could approach or exceed tolerable misstatement. Using $12,000 inverts the ratio incorrectly, and not extrapolating contradicts ISA 530.

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