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The auditors wish to test the valuation of accounts receivable in the audit of Kaplan Corporation. The client has $1,000,000 of total recorded receivables, composed

The auditors wish to test the valuation of accounts receivable in the audit of Kaplan Corporation. The client has $1,000,000 of total recorded receivables, composed of 2,000 accounts. The auditors have decided to use structured nonstatistical sampling and have determined the following:

Tolerable misstatement $50,000
Assessment of inherent and control risk Moderate
Risk related to other substantive procedures Moderate

Required:

Calculate the required sample size.

Assume that the auditors have tested the sample and discovered three misstatements:

Book Value Audited Value
$100 $ 90
512 600
900 520

The remainder of the sample had an average value (book and audited) of $501.00. Use the ratio estimation method to calculate the projected misstatement of the population.

Use the results obtained in (b) to come to a conclusion about whether to accept or reject the population

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