An Auditor Established a $60,000 Tolerable Misstatement for an Account

Multiple Choice

An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population of 1,000 items that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that

A) There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.
B) There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements.
C) The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.
D) The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.
Net overstatement is $3,500. Using difference projection, the mean misstatement per sampling unit is $70 ($3,500/50) and the projected misstatement is $70,000 ($70 x 1,000) . The projected misstatement is larger than the tolerable (even before considering sampling risk) .