AC503: Advanced Auditing

AC503: Advanced Auditing | Unit 4
Unit 4 Assignment
This assignment will assess the following Course Outcome:
AC503-3: Determine the key performance indicators of process and financial risks.
The Unit 4 Assignment contains a case study Mt. Hood Furniture and a problem involving PPS sampling. At
the completion of the assignment, you should have a practical understanding of the process of preparing an
assessment of the data obtained from the process and using PPS sampling. You can find this assignment at
the end of Chapter 13

AC503: Advanced Auditing
Required: Compose your Assignment in a Word document and save it as Username AC503 Assignment
Unit#.doc (Example: TAllen AC503 Assignment Unit 4.doc).
Case Questions (Word document) APA format
1. Title page/Reference page.
2. Answer all questions as shown below in the case study. Each answer should be at least 2-3
paragraphs. Include the questions on your paper; submit as a Word document.
3. Case Study (13-36) Mt. Hood furniture located at the end of Chapter 13.
(Mt. Hood Furniture—PPS sampling problem) You have been assigned the task of testing the accuracy
of the final inventory compilation for Mt. Hood Furniture. You may assume that you have separately
observed the inventory and that you are satisfied that the inventory was accurately counted. However,
you need to test that quantities were accurately transcribed to the final accumulation and valuation of
inventory and that the inventory is correctly priced and accumulated. The table beginning on page 617
of the textbook (note page number could vary if using ebook) presents the audited values associated with
Mt. Hood’s pricing and accumulation of all items in inventory.

AC503: Advanced Auditing

The book values will be given to you by your professor. You may assume that you have performed the
tests to determine the proper pricing for raw materials, work in process, and finished goods. The
student should understand that the auditor will normally obtain this information only for the items
included in the sample.
a) Identify the audit objectives that are accomplished by this test.
b) Determine the sample size based on the following audit judgments.
● Tolerable misstatement is assessed at $325,000.
● The risk of incorrect acceptance is assessed at 37%.
● Anticipated misstatement is assessed at $100,000.

AC503: Advanced Auditing
1. Develop a scenario that is consistent with setting the risk of incorrect acceptance at 37%.
2. Select a PPS sample of the above inventory population using the sample size determined in (2) above.
3. Explain the tests that you would perform to test the correctness of the pricing of raw materials, work in
progress, and finished goods.
4. Determine the amount of projected population misstatement based on your sample.
5. Considering your quantitative and qualitative results, develop a statistical conclusion and an audit
conclusion based on your sample.
Once completed, submit your Assignment to the Unit 4 Assignment Dropbox. Assignments are due Tuesday
11:59 p.m. ET of their assigned unit.
AC503: Assignment
Item criteria: Points
AC503: Advanced Auditing | Unit 4
The case study is a minimum of 4 pages, double spaced, not including the title and
reference pages. Includes all of the main elements and requirements and cites multiple
examples to illustrate each element.
Draws insightful conclusions that are thoroughly defended with evidence and examples. 30
Writing – No errors related to organization, grammar and style, and citations. The title page
and the reference page are included.
Total Points 100