An auditor has no apparent need to quantify sampling risk and, therefore, uses a nonstatistical sampling plan for inventory price testing. From prior experience with the client and current information about internal control, the auditor expects some pricing errors but also desires moderate assurance that the pricing of physical goods is fairly accurate. The auditor presets tolerable error at $12,000 and decides to test the 15 highest dollar items, totaling $50,000, which represents 40 percent of total recorded book value,

$125,000, After determining sample size and selecting and examining the sampling units, the auditor compiles the following results:

Required:
1. Determine an appropriate assurance factor.
2. Determine sample size.
3. Calculate likely error from the results indicated above.
4. Is recorded book value acceptable to the auditor? Why or why not?

Transcribed Image Text:

Key-dollar items Sampled items Population size is 600. Number of Errors 3 5 Total Error $5,000 overstatement $1,500 overstatement