An auditor is evaluating the results of a variables sampling plan for accounts receivable. The calculated point estimate of the population is $1,000,000. The recorded book value is $1,050,000. The allowance for sampling risk (precision) is calculated as $40,000. What is the auditor's conclusion?

Answer options:

The book value is fairly stated because the difference is immaterial.

The book value is misstated because it falls outside the acceptable range.

The auditor should accept the book value but increase the allowance for doubtful accounts.

The sample size was too small to draw a conclusion.

How to approach this question

Calculate the Interval: Point Estimate +/- Precision. Check if Book Value is inside.

Full Answer

B.The book value is misstated because it falls outside the acceptable range.✓ Correct

The book value is misstated because it falls outside the acceptable range.

The auditor constructs an interval (Point Estimate +/- Precision). If the client's book value falls outside this interval, the account is considered misstated.

Common mistakes

Comparing the difference ($50k) to materiality (not given) instead of precision.

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