Question
In Smith, Inc., Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc.
In Smith, Inc., Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 9,200 receivable accounts with a total book value of $1,525,000. Robertson estimates the population's standard deviation to be equal to $20. After examining the overall audit plan, the auditors believe that the account's tolerable misstatement is $51,000, and that a risk of incorrect rejection of 1 percent and a risk of incorrect acceptance of 5 percent are appropriate. Use Figure 9.8. (Do not round any division. Round other computations and the final answers to the nearest whole value.) |
Required: |
a. | Calculate the required sample size. (Roundup your final answer to the next whole number.) |
Assuming the following results: | |
Book value of items in sample = $158 | |
Average audited value of items in sample = $150 | |
Standard deviation of sample = $25 |
b. | Use the mean-per-unit method to: |
(1) | Calculate the point estimate of the account's audited value. |
(2) | Calculate the projected misstatement for the population. |
(3) | Calculate the adjusted allowance for sampling risk. |
(4) | State the auditors' conclusion in this situation (accept or reject). | ||||
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