Question
The auditors of Kansas Corporation wish to use a structured approach to nonstatistical sampling to evaluate the reasonableness of the accounts receivable. Kansas has 30,000
The auditors of Kansas Corporation wish to use a structured approach to nonstatistical sampling to evaluate the reasonableness of the accounts receivable. Kansas has 30,000 receivable accounts with a total book value of $5,400,000. The auditors have assessed the combined level of inherent and control risk at a moderate level and believe that their other substantive procedures are so limited as to require a maximum risk assessment. After considering the overall audit plan, the auditors believe that the tests tolerable misstatement is $86,500. Refer Figure 9-19.
Required:
a. Calculate the required sample size.
b. Assuming the following results:
Number of items in sample | 300 |
---|---|
Total audited value of sample items | $34,200 |
Total book value of sample items | $38,000 |
(1) Use the ratio estimation method to calculate the projected misstatement of the population.
(2) Use the difference estimation method to calculate the projected misstatement of the population.
c. Use the results of ratio estimation method and difference estimation method to arrive at a conclusion as to whether to accept or reject the population.
Reliability Factors for Nonstatistical Sampling Plan Note: This table is applicable when the auditors expect few misstatements in the populationStep by Step Solution
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