Clint Walker was examining the accounts receivable of Country Music Inc. Its accounts receivable were recorded at $1,500,000. Based on past audits, Walker established tolerable misstatement at 10 percent of the recorded account balance and anticipated a very small level of misstatement in Country Music's accounts receivable ($50,000). In his previous assessments of audit risk, risk of material misstatement, and analytical procedures risk, Walker had established a necessary risk of incorrect acceptance of 10 percent. Required: a. Calculate the sampling Interval and sample size that Walker would use in the audit of Country Music, 49 Sample size Sampling interval b. Reperform the calculations in part (e) if Walker had established a risk of incorrect acceptance of (1) 5 percent and (2) 20 percent. Based on your calculations, describe the relationship between the necessary level of the risk of incorrect acceptance and the sample size and sampling interval 1 Sample size Sampling interval 2 Sample size Sampling interval 2 Sample size Sampling interval Relationship between risk of incorrect acceptance and sample size Relationship between risk of incorrect acceptance and sampling interval C. (Note: Part (c) is unrelated to parts (@) and (b).] of Walker had detected the following four overstatements, determine the projected misstatement Recorded Balance $ 3,500 1,000 12,000 5,000 Audited Value $1,750 200 10,000 4,000 Sampling Interval $ 8,000 8,000 8,000 8,000 Projected statement d. Based on the results in part (c) and using a 10 percent risk of incorrect acceptance calculate the upper limit on misstatements. Uppor limit on misstatements e. Reperform the calculation in part (d) using a risk of incorrect acceptance of (1) 5 percent and (2) 20 percent Based on your calculation, describe the relationship between the necessary level of the risk of incorrect acceptance and the upper limit on misstatements. 1. Upper limit on misstatements 2. Upper limit on misstatements Relationship between risk of incorrect acceptance and sample size 1. Using a risk of incorrect acceptance of (1)5 percent. (2) 10 percent, and (3) 20 percent, determine what Walker's conclusion would be with respect to Country Music's accounts receivable. How do different levels of the risk of incorrect acceptance Influence the likelihood of concluding that the account balance is fairly stated? 1. Accounts receivable are 2. Accounts receivable are 3. Accounts receivable are
