Henry, CPA, is performing substantive tests of Crimson Company's accounts receivable (which have a recorded balance of
Question:
Henry, CPA, is performing substantive tests of Crimson Company's accounts receivable (which have a recorded balance of $200 million) and decided to confirm customer account balances. Because of the large number of customer balances, Henry has decided to use variables sampling and has established a risk of incorrect acceptance of 5 percent and a tolerable misstatement of $10 million.
Required:
a. What is the appropriate population from which Henry should select his sample?
b. After selecting and evaluating his sample, Henry has determined an upper limit on misstatements of $17 million.
1. Provide a brief explanation about the meaning of the term upper limit on misstatements.
2. What would Henry conclude with respect to Crimson Company's accounts receivable?
3. What sampling risk(s) is Henry exposed to in this situation?
c. Repeat part (b), assuming that Henry determined an upper limit on misstatements of $6 million.
d. If Henry were willing to accept a risk of incorrect acceptance of 10 percent, how would that affect the likelihood of accepting Crimson Company's accounts receivable balance as fairly stated?
Accounts ReceivableAccounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
Basic Variables Sampling a Henry should select his sample from the population of customer account ba...View the full answer
Auditing and Assurance Services
ISBN: 978-1260152166
7th edition
Authors: Timothy Louwers, Allen Blay, David Sinason, Jerry Strawser, Jay Thibodeau
