Question
Terri Sampson is auditing the accounts receivable of Bikkely Ltd for the year ended 30th June 2020. Bikkely's accounts receivable balance was recorded at $8,500,000
Terri Sampson is auditing the accounts receivable of Bikkely Ltd for the year ended 30th June 2020. Bikkely's accounts receivable balance was recorded at $8,500,000 and comprised more than 2,000 customer accounts. However Bikkely's 10 largest customer balances comprised a high percentage of the recoded accounts receivable (more than $1,500,000 or 30%). As a result, Terri is considering using Dollar Unit Sampling.
Based on prior audits and other judgments, Terri has established the following parameters:
Risk of Incorrect Acceptance 10%
Tolerable Error $335,000
Expected Error $180,000
Required:
1.Determine the required sample size that would be used by Terri in the audit of Bikkely Ltd. Explain how you arrived at this sample size
2.Calculate the sampling interval - show all workings.
3.Explain the concept of tolerable error in dollar unit sampling
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