Solution to Discussion Cases
9-27
The incorrect assumptions, statements, and inappropriate applications of sampling are as
follows:
 Classical variables sampling is not designed for tests of controls.
 MUS sampling uses each dollar in the population, not each account, as a separate
sampling unit.
 MUS sampling is not efficient if many misstatements are expected because the
sample size can become larger than the corresponding sample size for classical
variables sampling as the expected amount of misstatement increases.
 Each account does not have an equal chance of being selected; the probability of
selection of the accounts is proportional to the account's dollar amount.
 MUS sampling requires special consideration for negative (credit) balances.
 Tolerable misstatement was not considered in calculating sample size.
 Expected misstatement was not considered in calculating sample size.
 The standard deviation of the dollar amounts is not required for MUS sampling.
 The three selected accounts with insignificant balances should not have been ignored
or replaced with other accounts.
 The account with the $1,000 difference (recorded amount of $4,000 and audited
amount of $3,000) was incorrectly projected as a $1,000 misstatement; the projected
misstatement for this difference was actually $2,500 ($1,000/$4,000 x $10,000
sampling interval).
 The difference in the understated account (recorded amount of $1,900 and audited
amount of $2,000) should not have been omitted from the calculation of projected
misstatement.
 The reasoning (the comparison of projected misstatement with the allowance for
sampling risk) concerning the decision that the receivables balance was not overstated
was erroneous.
9-28
a. While Doug's selection method is not random, judgmentally "targeting" items for
testing is acceptable under auditing standards and it may be preferable if there is
reason to think some balances are more likely misstated than others. Doug's reasoning
for selection seems reasonably sound.
b. Because the items selected were not identified randomly, Doug cannot use statistical
sampling methods to quantify sampling risk or evaluate his results. His "sample"
accounts for 66% ($720,000/$1,090,000) of ending inventory and even though it isn't
technically appropriate to project the results from the "sample" we can use our
understanding of projection to inform our judgment regarding the sufficiency of the
evidence. Projected misstatement using ratio estimation would be $121,111
($80,000/$720,000 x $1,090,000) which is well below tolerable misstatement of
$250,000 ($500,000 x 50 percent).
Doug based his selection on the items that were most risky or most likely to be
misstated. Assuming he was successful at identifying the riskiest items and the fact
that he obtained relatively high coverage (the remaining items account for only 44%
and are less likely to contain misstatements), it appears reasonable to conclude he as
sufficient evidence to consider the balance fairly stated.