CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceMedium
An auditor is evaluating the allowance for doubtful accounts for a client that primarily sells on credit. The auditor decides to use a monetary unit sampling (MUS) approach to test the valuation assertion. The auditor selects a sample of 100 accounts receivable with a total book value of $500,000 from a population of $5,000,000. One sampled account with a book value of $5,000 is found to be overstated by $1,000. What is the tainting factor for this misstatement?
- A0.05
- B0.10
- C0.20
- D0.02
Show answer & explanationAnswer & explanation
Correct answer: C. 0.20
The tainting factor in MUS is calculated as the amount of misstatement divided by the book value of the item. In this case, the misstatement is $1,000 and the book value is $5,000. Therefore, $1,000 / $5,000 = 0.20.
Why the other options are wrong
- A. This is incorrect. It might be misstatement / (population book value / total sample book value), or misstatement / population book value, which are not correct for tainting factor.
- B. This is incorrect. It might be calculated as misstatement / (population book value / sample size), or misstatement / population book value, which are not correct for tainting factor.
- D. This is incorrect. It might be misstatement / population book value, or misstatement / (population book value / sample size), which are not correct for tainting factor.
Tainting Factor (MUS)
In Monetary Unit Sampling (MUS), the tainting factor (or misstatement ratio) for an individual sampled item is the ratio of the misstatement amount to the book value of that sampled item. It is used to project misstatements to the population.
- Tainting factor = Misstatement Amount / Book Value of Item.
- It is applied to the sampling interval to calculate the projected misstatement for that interval.
- Items with book value greater than the sampling interval are always selected and their actual misstatement is used directly, not a tainting factor.
Memory trick: TAINTING factor is about how much a single item's MISSTATEMENT TAINTED its OWN value.