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How to perform a Projected Misstatement as part of Monetary Unit Sampling (MUS)?

A Projected Misstatement calculation is an extension of a Monetary Unit Sampling (MUS) exercise: It is an estimate of the total amount of misstatement in the population based on the misstatements found in the sample. It involves extrapolating (or "projecting") the misstatements identified in the sample to the entire population to estimate the overall impact.

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After having provided all relevant information for MUS, just set the tickmark for "Projected misstatement":

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After clicking on "Sample", the result will be shown on a separate sheet (sample incl. an overview of the main input factors). The columns that have been selected in the original sheet will also be shown on the results sheet.

 

An additional row "Audited values" will be automatically added (column D in the example below):

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In this column, the user can enter all deviations (audited values vs values from the Excel sheet) for all sample items. For any empty cell, the tool expects the value to be correct.

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In the next step, the user needs to click on "Sampling" and "Projected Misstatement":

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A new sheet will be added with the Projected Misstatement result. This includes an overview of 'Overstatements' and 'Understatements' as well as the breakdown into the different components. Finally, the result is shown:

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  • If Upper Misstatement Bound and Lower Misstatement Bound ≤ Tolerable Misstatement, conclude that the account balance is not materially misstated

  • If Upper Misstatement Bound or Lower Misstatement Bound > Tolerable Misstatement, conclude that the account balance is materially misstated

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  • Note: The following part describes in detail how the projected misstatement is calculated:

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  • Identify misstatements in the sample: The auditor examines a sample of monetary units from the population. If misstatements are found in the sample, their amounts are recorded. Misstatements are separated in positive and negative deviations (overstatements and understatements).

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  • Calculate the Tainting factor: For each misstatement found in the sample, the auditor calculates the tainting factor. The tainting factor is the ratio of the misstatement amount to the recorded amount (Book value) in the sample.

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  • Tainting (%) = (Book value - Audited value) / Book value [here, for overstatements] 

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  • Project the Misstatement to the Population: The tainting factors are then projected to the population by multiplying each tainting factor by the monetary amount represented by each Sampling interval. This provides a Projected misstatement.

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  • Apply the Incremental confidence factor: To adjust the Projected misstatement for the desired confidence level, the auditor applies the incremental confidence factor. It is derived from statistical tables and reflects the probability that the actual total misstatement in the population is at or below the projected misstatement.

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  • The incremental confidence factor increases as the desired confidence level increases. It accounts for the fact that the actual misstatement could be higher than the basic projected amount.

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  • Calculate the Misstatement bound: The Projected misstatement, including the incremental confidence factor, gives the Misstatement bound. This is the maximum misstatement the auditor expects in the population at a given confidence level.

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  • Misstatement bound = Projected misstatement × Incremental confidence factor

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