Auditing and Assurance Services 1st Edition by Iris Stuart

Exercise 18

Developing a sampling plan for inventory test counts. Auditors typically attend the client's year -end inventory count and make tests counts then to gather evidence regarding the ending inventory.
a. What assertion are the auditors testing for inventory
b. Prepare a sampling plan to perform the test. The desired level of assurance is 95% (5% risk of incorrect acceptance). The ratio of estimated misstatement to tolerable misstatement is 0.15. The materiality level is $1,000,000, and the population is $14,800,000. The auditor assumes that tolerable misstatement is 75% of materiality.
c. How will you select your sample Do you have choices in the method to use to select the sample Explain your answer.
d. Explain how you will evaluate the results of your sample. State clearly the possible conclusions from your tests.
e. You have determined that ten inventory items have a large value. How will this change your sampling plan
f. Assume that the ten items have an inventory value of $6,000,000. What is the new sample size Will you count the ten items with high value Explain your answer.