1. Maureen Crowe wishes to test the valuation of inventory in the audit of Benecia Emiliano Enterprise of Park City. The client has $10,000,000 in total recorded inventory, composed of 2,000 accounts. The auditors have determined the following:

Tolerable misstatement $350,000

Risk of incorrect acceptance 5%

Risk of Incorrect rejection 10%

Expected misstatement $35,000

Maureen Crowe has decided to use probability-proportional-to-size sampling.

a. For planning the sample, calculate:

1. Required sample size.
2. Sampling interval.

b. Assume that Maureen Crowe has tested the sample and discovered five misstatements:

Book Value Audited Value Difference Taint

$ 15,000 $ 14,700

18,000 17,400

25,000 24,500

66,000 55,000

78,500 75,100

Calculate:

1. Projected misstatement.
2. Basic precision.
3. Incremental allowance.
4. Upper limit on misstatement.

c. Explain how Maureen Crowe would consider the results calculated in b.