CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceHard
An auditor is using monetary unit sampling (MUS) to test the valuation assertion for accounts receivable. The auditor selects a sample of accounts and finds that one sampled account with a recorded balance of $10,000 has an audit value of $9,000. The sampling interval is $50,000. What is the projected misstatement for this specific item, assuming the auditor uses the tainting factor approach?
- A$5,000
- B$10,000
- C$50,000
- D$1,000
Show answer & explanationAnswer & explanation
Correct answer: A. $5,000
In MUS, the projected misstatement for an understated item (or overstated item that is not 100% misstated) is calculated by multiplying the tainting factor by the sampling interval. The tainting factor is (Recorded Balance - Audit Value) / Recorded Balance. Here, the tainting factor is ($10,000 - $9,000) / $10,000 = $1,000 / $10,000 = 0.10. The projected misstatement is 0.10 * $50,000 = $5,000.
Why the other options are wrong
- B. This is the recorded balance of the sampled item, not the projected misstatement.
- C. This is the sampling interval, not the projected misstatement for this item.
- D. This is the actual misstatement found in the sampled item, not the projected misstatement for the population.
Projected Misstatement (MUS Tainting Factor)
In Monetary Unit Sampling, the projected misstatement for an item is calculated by applying the tainting factor (percentage of misstatement in the item) to the sampling interval.
- Tainting Factor = (Recorded Value - Audit Value) / Recorded Value.
- Projected Misstatement = Tainting Factor * Sampling Interval.
- Used for items where the misstatement is less than 100%.
Memory trick: Tainting Factor times Interval, that's the projection for sampling.