1)

Customer Balance ($) Cumulative total ($) Selected (Y/N)

1 60,000 60,000 N

2 70,000 130,000 N

3 90,000 220,000 Y

4 105,000 325,000 N

5 28,000 353,000 N

6 100,000 453,000 Y

7 46,000 499,000 N

8 1,000 500,000 N

9 84,000 584,000 Y

10 94,000 678,000 N

11 108,000 786,000 N

12 34,000 820,000 N

13 160,000 980,000 Y

14 20,000 1000,000 N

1,000,000

2)
i) 1,800,000/500 x 36 = 1,960,000
460,000/1,296,000 x 1,800,000 = 638,889
ii) The tolerable misstatement is the maximum amount of misstatement that the auditor is
willing to accept without modifying the opinion on the financial statements. In this case,
the tolerable misstatement was set at $120,000.
- If the initial sample size was insufficient to detect misstatements, the auditor might
decide to expand the sample size to obtain more reliable results.
- The auditor may need to perform additional substantive procedures to gather more
evidence about the accuracy and completeness of the account balances. This could
involve examining individual account transactions, confirming balances with customers,
or performing analytical procedures.
iii) If the tolerable misstatement was set at $100,000, and the calculated expected error in
the population is approximately $638,888.89, which exceeds the tolerable misstatement
- The auditor should carefully assess the sampling error to confirm it's not an artifact of
the sampling process itself. This entails reviewing the sampling methodology, the
process for selecting the sample, and the accuracy of the sample results.
 - The auditor might decide to expand the sample size to ensure more reliable results.
Increasing the sample size can enhance the precision of the audit findings and provide a
clearer picture of the true extent of misstatement.
3)
a) 30/500* 100% = 6%
b) If the tolerable rate of deviation is set at 4%, it means management is willing to accept a
maximum error rate of 4% in the population. Management should investigate the root
causes of the high error rate, strengthen internal controls, and implement corrective
measures to reduce the error rate below the tolerable threshold.
c) While the error rate is below the tolerable threshold, management should still investigate
the causes of the deviations and consider implementing improvements to further mitigate
risks.