You intend to use MUS as a part of the audit of sev¬ eral accounts for Roynpower Manufacturing Inc. You have done the audit for the past several years, and there has rarely been an adjusting entry of any kind. Your audit tests of all tests of controls for the transactions cycles were completed at an interim date, and control risk has been assessed as low. You therefore decide to use an ARIA of 10 percent for all tests of details of balances.

You intend to use MUS in the audit of the three most material asset balance sheet account balances: accounts receivable, inventory, and marketable securities. You feel jus¬ tified in using the same ARIA for each audit area because of the low assessed control risk.

The recorded balances and related information for the three accounts are as follows:

RECORDED

Net earnings before taxes for Roynpower are \($2,000,000\). You decide that materiality will be \($100,000\) for the client.
The audit approach will be to determine the total sample size needed for all three accounts. A sample will be selected from all \($10\) million, and the appropriate testing for a sample item will depend on whether the item is a receivable, inven¬ tory, or marketable security. The audit conclusions will per¬ tain to the entire \($10\) million, and no conclusion will be made about the three individual accounts unless significant mis¬ statements are found in the sample.
Required

a. Evaluate the audit approach of testing all three account balances in one sample.

b. Calculate the required sample size for all three accounts.

c. Calculate the required sample size for each of the three accounts assuming you decide that the tolerable mis¬ statement in each account is \($100,000\). (Recall that tolerable misstatement equals preliminary judgment about materiality for MUS.)

d. How would you identify which sample item in the pop¬ ulation to audit for the number 4,627,871? What audit procedures would be performed?

e. Assume you select a sample of 100 sample items for test¬ ing and you find one misstatement in inventory. The recorded value is \($987.12\), and the audit value is \($887.12\). Calculate the misstatement bounds for the three com¬ bined accounts, and reach appropriate audit conclusions.

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Accounts receivable Inventory Marketable securities RECORDED VALUE $3,600,000 4,800,000 1,600,000 $10,000,000