Nonstatistical Sampling Conclusion Compare expected misstatement to the total projected misstatement - If total projected misstatement expected misstatement - Unacceptably high risk that the true misstatement exceeds the tolerable misstatement Calculating the Sample Results Example - Population is 600 items totaling $1,000,000 - Sample 50 items totaling $100,000 - Find misstatements totaling $5,000 Ratio Projection - $ misstatements in sample / \$ of sample - 5%($5,000/$100,000) - Misstatement ratio X$ of population - $50,000(5%$1,000,000) Difference Projection - $ misstatements in sample / number of items in sample - $100($5,000/50) - Average misstatement per item X number of items in population - $60,000($100600) Determining the Sample Size Sample size =(TolerableExpectedmisstatementSamplingpopulationbookvalue) Confidence factc Problem 9-24, Part A Problem 9-24 Part A The accounting firm of Johnson and Johnson has decided to design a nonstatistical sample to examine the accounts receivable balance of Francisco Fragrances, Inc., at October 31. As of October 31 , there were 1,500 accounts receivable accounts with a balance of $5.5 million. The accounts receivable population can be segregated into the following strata: Jonathan L. Gren, senior-in-charge of the audit, has made the following decisions: - Based on the results of the tests of controls and risk assessment procedures, a low assessment is made for the risk of material misstatement. - The desired confidence level is moderate. - The tolerable misstatement allocated to accounts receivable is $155,000, and the expected misstatement is $55,000. - All the balances greater than $50,000 will be audited. a. Using the nonstatistical sampling formula included in the textbook, compute the suggested sample size for this test. Problem 9-24 Part B b. Gren confirmed the accounts receivable accounts selected and noted the following results: Using ratio projection, what is the total projected misstatement? What conclusion should Gren make concerning the accounts receivable balance? Nonstatistical Sampling Conclusion Compare expected misstatement to the total projected misstatement - If total projected misstatement expected misstatement - Unacceptably high risk that the true misstatement exceeds the tolerable misstatement Calculating the Sample Results Example - Population is 600 items totaling $1,000,000 - Sample 50 items totaling $100,000 - Find misstatements totaling $5,000 Ratio Projection - $ misstatements in sample / \$ of sample - 5%($5,000/$100,000) - Misstatement ratio X$ of population - $50,000(5%$1,000,000) Difference Projection - $ misstatements in sample / number of items in sample - $100($5,000/50) - Average misstatement per item X number of items in population - $60,000($100600) Determining the Sample Size Sample size =(TolerableExpectedmisstatementSamplingpopulationbookvalue) Confidence factc Problem 9-24, Part A Problem 9-24 Part A The accounting firm of Johnson and Johnson has decided to design a nonstatistical sample to examine the accounts receivable balance of Francisco Fragrances, Inc., at October 31. As of October 31 , there were 1,500 accounts receivable accounts with a balance of $5.5 million. The accounts receivable population can be segregated into the following strata: Jonathan L. Gren, senior-in-charge of the audit, has made the following decisions: - Based on the results of the tests of controls and risk assessment procedures, a low assessment is made for the risk of material misstatement. - The desired confidence level is moderate. - The tolerable misstatement allocated to accounts receivable is $155,000, and the expected misstatement is $55,000. - All the balances greater than $50,000 will be audited. a. Using the nonstatistical sampling formula included in the textbook, compute the suggested sample size for this test. Problem 9-24 Part B b. Gren confirmed the accounts receivable accounts selected and noted the following results: Using ratio projection, what is the total projected misstatement? What conclusion should Gren make concerning the accounts receivable balance