Audit Sampling. You Found an Error. Now What?

Sampling is not about finding every mistake. It is about drawing a defensible conclusion about a population from the evidence you can reasonably obtain. The professional judgment embedded in that process is where auditors earn their value.

The Scenario:

You are an audit senior working on the accounts receivable balance for Meridian Supply Co., a regional industrial distributor. The following information has been provided to you by the engagement partner:

• Total recorded AR balance: $4,200,000
• Tolerable misstatement established by the engagement team: $105,000
• Desired confidence level: 95%
• You have completed your MUS sample and examined 60 items
• One misstatement was found: a recorded balance of $8,400 that should have been $5,600

You must now do three things: project the misstatement to the full population, compare your projected misstatement to the tolerable misstatement, and issue a professional conclusion to the engagement partner.

Cite Chapter 9 and any external sources used. Minimum 200 words, though a thorough response to this prompt will naturally run longer.

Your Post Must Address All of the Following:

1. Show Your Work: Walk through your misstatement projection calculation step by step using MUS methodology from Chapter 9. State your tainting percentage, your projected misstatement, and your upper misstatement limit. Do not skip steps. An audit workpaper that cannot be followed by a reviewer is not a workpaper.

2. Your Conclusion: Based on your projection, is the AR balance fairly stated within tolerable misstatement? What do you recommend to the engagement partner? Be direct. Partners do not want hedged non-answers.

3. The Judgment Call: One misstatement in 60 items seems small. Make the case for why this finding should or should not trigger an expanded sample. What factors beyond the math would influence your decision?

4. Method Defense: Why is MUS appropriate for this population? Under what circumstances would Classical Variables Sampling have been the stronger choice? This answer should be grounded in Chapter 9 concepts, not general preference.

5. Real-World Connection: Find one real audit, enforcement action, or PCAOB inspection finding where sampling methodology or misstatement projection was cited as a deficiency. Briefly describe what went wrong and how it connects to the concepts in this scenario.