Evaluating substantive testing results
Required
(a) Project the errors for each stratum and calculate the total projected error. Is the projected error material? What difference would it make if the tolerable error was set at $50,000 or $30 000? Explain.
(b) Discuss the implications for the substantive testing if it was discovered that for three months of the financial year the permanent staff member in the department corresponding to stratum 3 was on long service leave.
(a) Completed Table:
| Stratum | Error found | Sample total value | Stratum total value | Projected error |
| 1 | $7,930 | $101,170 | $128,660 | 10,085 |
| 2 | $3,290 | $41,990 | $76,830 | 6,020 |
| 3 | $8,600 | $62,840 | $162,280 | 22,209 |
| Total | $19,820 | $206,000 | $367,770 | 38,314 |
Projected error ($38 314) is not material if tolerable error is set at $40,000. This conclusion is still the same if the tolerable error is set at $50,000. However, it is material if tolerable error is set at $30,000 and the auditor will need to do more testing.
(b) Consider results of testing controls for the three months. If results are not consistent across the year and show that controls are weaker in that period, the auditor would need more substantive testing for weaker control period, or change the tolerable error for that period to reflect the weaker controls.