You have been assigned the task of testing the accuracy of the

(Mt. Hood FurniturePPS sampling problem) You have been assignedthe task of testing the accuracy of the final inventory compilationfor Mt. Hood Furniture. You may assume that you have separatelyobserved the inventory and that you are satisfied that theinventory was accurately counted. However, you need to test thatquantities were accurately transcribed to the final accumulationand valuation of inventory and that the inventory incorrectlypriced and accumulated. The table beginning on page 617 presentsthe audited values associated with Mt.Hoods pricing andaccumulation of all items in inventory. The book values will begiven to you by your professor. You may assume that you haveperformed the tests to determine the proper pricing for rawmaterials, work in process, and finished goods. The student shouldunderstand that the auditor will normally obtain this informationonly for the items included in the sample. Required1. Identify the audit objectives that are accomplished by thistest.2. Determine sample size based on the following audit judgments.Tolerable misstatement is assessed at $325,000.b. The risk ofincorrect acceptance is assessed at 37 percent. Anticipatedmisstatement is assessed at $100,000.3. Develop a scenario that is consistent with setting the risk ofincorrect acceptance at 37percent.4. Select a PPS sample of the above inventory population using thesample size determined in (2) above.5. Explain the tests that you would perform to test the correctnessof pricing of raw materials, work in progress, and finished goods.(The student may wish to consult Chapter 16.)6. Determine the amount of projected population misstatement basedon your sample.7. Considering your quantitative and qualitative results, develop astatistical conclusionand an audit conclusion based on yoursample.

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