Assume you are testing a sample of the accounts receivables for an audit client and, with the use of monetary unit sampling, have calculated a total estimated misstatement of $446,500. The audit team has set the tolerable misstatement threshold at $450,000 and the ending accounts receivable balance for the audit year is $2,250,000. With regard to the closeness of these dollar amounts, answer the following:
- Do you believe the accounts receivable tolerable misstatement amount requires a downward adjustment?
- In light of the testing outcome, the audit senior has decided to increase the tolerable misstatement amount to $475,000 due to the audit client’s strong financial condition and because the testing of internal controls did not present any increased control risk. How would you use your professional judgment to address this situation?
- Explain how you might adjust your sampling for further testing and how the use of data analytics tools could be beneficial in this type of scenario.
