Could you please help me with this Earthwear Mini case Chapter 10 (audit).?
In this mini-case you will complete the test of details on accounts receivable for the 2016 audit of
EarthWear Clothiers, Inc. The principal test of detail involves sending "confirmations" or letters to
customers so that they can confirm that they owe EarthWear the reported balance. All six customer
accounts receivable balances exceeding $100,000 were targeted for testing. These six balances,
aggregated total of $921,000, were confirmed without exceptions. The remaining accounts are of
similar size and total $7,722,000 and will be tested via audit sampling. Inputs for the sample size
determination were, Desired Confidence Level?95%, Tolerable Misstatement?$600,000, and
Expected Misstatement?$154,440. Based on these inputs, 67 accounts receivable balances were
selected for confirmation requests. The first 63 accounts receivable confirmations have already been
reviewed by other staff members and no errors have been found. The remaining four confirmations
require your review as they were returned with notes from customers indicating a potential
misstatement. Please note that legitimate timing differences do not result in misstatements.
rev: 09_13_2016_QC_CS-58870, 10_20_2016_QC_CS-66079 1.
value: 14.00 points
Note: This question will not be automatically graded.
It will be sent to your instructor for review.
1. Review the four confirmation responses in the PDF file downloaded from the mini-case website (a
link is also provided below). Enter the information into Work Paper 10-1. For each confirmation
response, please determine whether the difference noted by the customer represents a
misstatement or a timing difference. After reviewing all four confirmations, please complete both the
nonstatistical and the statistical evaluation options outlined on Work Paper 10-1. Chapter 9 of the
text provides guidance on both nonstatistical and statistical evaluation. You will need to obtain the
Sampling Interval before evaluating the results statistically using IDEA. One approach you can use
to obtain the sampling interval is to calculate the sample size in IDEA using the inputs provided
above. Please refer to Chapter 9 for a description of how to calculate a sample size and evaluate
errors using IDEA. Please be careful as you enter your results from IDEA to the work paper as the
items may not be listed in the same order. Download the PDF file above to complete this case.
Complete the worksheet below by reviewing the accounts receivable confirmation file contained in
the Instructions. (Leave no cell blank – Be sure to enter "0" wherever required.)
Work Paper 10-1 EARTHWEAR CLOTHIERS
Evaluation of A/R Confirmatio
December 31, 2016
Results of A/R Confirmations
Customer Name A/R Balance A/R Balance per Difference per Customer Re per clients’
652-54310 Red Star Health Group $ 12,365 210-38725 Museum of Flight $ 14,235 254-62418 Summit Hills Country
Club $ 24,362 179-26343 Central States Hotels $ 18,642 $ 880,560 63 additional items
Total Dollar Amount of Items in Sample $ 950,164 Customer
12,356 9 $ $
0 14,235 $ $
21,520 2842 $ $
15,642 3,000 $ 880,560
$ 930,078 20,086 N To Nonstatistical Evaluation of Errors (Round your percentage answers for "Ratio of
Misstatements" to 4 decimal places. Round all other answers to the nearest whole dollar.
Leave no cell blank – Be sure to enter "0" wherever required.)
,000 Book Known or Ratio of
Value Factual Misstatem
Misstate ents in
ent** Evaluation of Test Results $
$ Evaluation of test results? $ Statistical Evaluation of Errors using IDEA Monetary Unit Sampling (Round you answers to 2
decimal places. Leave no cell blank – Be sure to enter "0" wherever required.)
Number of errors
Gross most likely error
Net most likely error
Total precision Overstatements
0 Evaluation of Gross upper error limit
Net upper error limit 2. After completing both the nonstatistical and statistical evaluation methods, please briefly discuss
how the results compare to each other in the space provided on Work Paper 10-1. Are the monetary
amounts and overall conclusions similar?
Evaluation Method Comparison rev: 10_19_2016_QC_CS-66079
eBook & Resources
WorksheetLearning Objective: 10-12 Know the substantive tests of transactions and the tests of
details used to audit revenue-related accounts.
Difficulty: 2 MediumLearning Objective: 10-13 Understand the confirmation process for accounts