Requirement 3: Calculate and Interpret the Upper Limit on Misstatements Decision Matrix: The tolerable misstatement is $40,000. If the upper limit of the misstatements is below the tolerable misstatements, then account receivable is reasonable. If the upper limit of the misstatements is above of the tolerable misstatements, then the account receivable is not reasonable. Note: The Expansion Factor for risk at 5% of incorrect misstatements is 1.6. With number of overstatements of (0) and risk of incorrect acceptance, the Reliability Factor is 3. Basic Precision = Reliability Factor * Sampling Interval = 3.0 * $9,090 = $27,270 Calculate the Incremental Allowance for Projected Misstatements Reliability factor Increment Increment Less one Projected Misstatements Incremental Allowance 3.0 - 4.75 1.75 .75 2272 1704 6.30 1.55 .55 1818 999 Total 2703