Substantive Verification Procedures: Where are the Misstatements? You are a senior attester employed in San Diego, California, by Lopez & Ryan, LLP (LR). The firm has been engaged by DDS to attest to the veracity of information contained on the most recent version of their Form D1. This form is important because it is the basis for the oral assertions which representatives of DDS make when attempting to induce persons who inquire about joining to become new clients. For example, during a recent site visit, you overheard an employee inform a prospective client that approximately 20% of the persons listed in the database have advanced degrees, the average age of those persons listed in the database is approximately 40 years, and that about 50% of the persons listed in the database never have been married. Moreover, the representative stated that they are one of the few services in the county whose database contains 1 in 5 persons having a professional occupation (e.g., doctor, lawyer, etc.). You are now at the stage of the attest engagement which directly tests the assertions contained in the most recent Form D1. Based on interviews with DDS personnel, your team currently believes that more than 9 of every 10 clients are honest when providing DDS with various demographic information. The attest team has decided to focus its attention on the following assertions which appear on the most recent Form D1: Assertion Detail Average age 42.1 years Average income $60,025 Percentage of persons with advanced degrees 18.8% In practice, attesters must determine what constitutes a material misstatement, what procedures to perform to verify each key assertion, when to perform such procedures, and the extent to which such procedures should be performed. Attesters then must perform such procedures, evaluate the resulting evidence, and finally, reach a conclusion about the veracity of the assertion. For the present case, the assertions have been identified for you and the timing issue (i.e., when the procedures should be performed) is beyond the scope of the assignment. Required: 1. Risk of Material Misstatement Memo Due Monday, March 17 th Assess the risk of material misstatement as high, moderate or low, for each of the three “balances.” Your assessment should be based on the inherent risk factors and control risk factors for each (age, income, and percent with advanced degrees). Document your assessment in a short memo (1 page). NOTE: I’ll assign you a sample size for your testwork only after you discuss your assessments with me. Make sure to talk to me in class or come to office hours! 2. Audit Plan (Program) Due Monday, March 17 th Prepare an audit plan detailing the substantive tests-of-detail procedures you would perform to verify the age, income, and percentage of members with advanced degrees balances. Recall that an audit plan (also called an audit program) is a detailed set of instructions as to how to conduct the audit, it is not.