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March 20, 2017
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develop a sampling plan to determine the extent of misstatements in classifying expenditures as repairs and maintenance expense or factory equipment additions
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develop a sampling plan to determine the extent of misstatements in classifying expenditures as repairs and maintenance expense or factory equipment additions
Richard Derick has asked you to develop a sampling plan to determine the extent of misstatements in classifying expenditures as repairs and maintenance expense or factory equipment additions. Given the problems noted during control testing (as described in Module II), Derick believes that significant misstatements may have occurred. The same vendor’s invoice frequently contains charges for parts and supplies as well as equipment, and the Biltrite employees preparing the vouchers sometimes fail to distinguish among the charges and simply indicate “factory equipment” as the debit if the invoice amount is large. Inasmuch as this type of misstatement would cause an overstatement in the factory equipment account, Derick instructs you to use MUS sampling to determine the extent to which such misstatements have occurred during 2009. Of the total debits-$89,860,000 to factory equipment during 2009-major additions in the amount of $77,260,000 have been made to replace worn-out equipment. Derick has decided to audit the major additions in their entirety and sample the remainder. 1. What is the objective of performing this test? What is the sampling unit? What is the population?
