Auditing and Assurance Services 9th Edition by Alvin Arens,Mark Beasley,Randy Elder

Exercise 26

You are in charge of the audit of Hipp Supply Company for the year ended December 31. In prior years, your firm observed the inventory and tested compilation and pricing. Various misstatements were always found. About 10 percent of the dollar value of the inventory is usually tested.
This year you have established the tolerable misstatement to be $5,000. The entity's book value is $97,500. The entity has 960 inventory items, the number of which has been determined by examining inventory codes. Each item will be tagged with a prenumbered inventory tag numbered from 1 to 960. You plan to evaluate the results using classical variables sampling (difference estimation).
Assume you have selected a sample of 100 items randomly. For each sample item, audit tests are performed to make sure that the physical count is correct, the pricing is accurate, and the extensions of unit price and quantity are correct. The results are summarized as follows:

There were 50 differences, making up the net difference of $481. The recorded total of the entity's inventory sheets is $97,500.
Required:
Determine the results of the audit tests using a desired confidence level of 90 percent. Indicate whether the evidence supports the fair presentation of the inventory account.