Background: You are testing the A/R balance through the confirmation process. Using Monetary Unit Sampling, determine whether the A/R balances is likely to be materially misstated.

Key information:

Total A/R Balance: $10,000,000

# of individual customer A/R accounts: 5,600

Expected Misstatement: $400,000

Tolerable Misstatement (10% of A/R balance): $1,000,000

Risk of Incorrect Acceptance: 10%

Compute the Sample Size:

Determine the sample size by using the table in Exhibit GA.1 (pg. 872 of textbook) using the following assumptions:

• Risk of incorrect acceptance = 10%

• Ratio of expected misstatement to tolerable misstatement = 40% ($400,000 $1,000,000)
• Tolerable misstatement as a percentage of population = 10% ($1,000,000 $10,000,000)

Sample size = ________

Compute the Sampling Interval:

Sampling interval = __________

Analyzing the Sampled Customer A/R Balances to Compute the Upper Limit on Misstatement:

The following misstated A/R balances were detected:

Recorded Audited Tainting

Customer Balance Balance %

S. Lewis $ 40,000 $20,000

R. Wood 50,000 40,000

M. Patrick 80,000 60,000

D. Simmons 100,000 80,000

Step (1): Calculate tainting percentage: