• Bill Pei, CPA, is about to begin his audit of the accuracy of his client's accounts receivable. Based on experience, he expects that approximately 1 percent of the client's 40,000 accounts have errors. The total book value of receivables is $5 million. Pei has established $380,000 as the amount of tolerable misstatement, 5 percent for the risk of incorrect acceptance, and 5 percent for the risk of incorrect rejection. The auditor estimates the standard deviation of the accounts to be $45.
• Required:
• a. Using mean-per-unit sampling, calculate the required sample size.
• b. Now ignore requirement (a). Assume that as part of an attributes sampling plan using a tolerable deviation rate of 5 percent and a risk assessing control risk too low of 5 percent, the auditor wishes to test the valuation of the receivablesthat is, each account will be considered as either correct or a deviation. What sample size would be required for this test?
• Additional information for requirements (c) through (g):
• Now ignore your requirement (a) and (b) answers and assume that the auditor selected a random sample of 202 accounts, representing a total book value of receivables of $40,200. He found five errors, representing a $3,750 overstatement, as follows:

Misstatement	Book Value	Audited Value
1	$26,000	$22,500
2	1,000	900
3	220	200
4	180	120
5	100	30
	$27,500	$23,750

1. After reading the scenario above, answer the following questions:
   • The standard deviation of the book value of the sample was $50, while the standard deviation of the audited values of the sample was $58.
2. 1. 1. Using mean-per-unit estimation, what is the projected misstatement for the population?
      2. Using mean-per-unit sampling, calculate the allowance for sampling risk and use it to calculate the appropriate interval for use in deciding whether to "accept" or "reject" the population.
      3. Using difference estimation, calculate the projected misstatement for the population.
      4. Given five misstatements, what statistical conclusion may be made using attributes sampling?
      5. Assume a sampling interval of $24,752 ($5,000,000/202). Using MUS, calculate:
         1. Projected misstatement.
         2. Basic precision.
         3. Incremental allowance for sampling risk.
         4. Upper limit on misstatement.