The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation for the fiscal year ended October 31. Michelle Le, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Coomes' inventory account. The balance in the inventory at October 31 was $4,250,000. Michelle has established the following: risk of incorrect acceptance = 5% (.e., the desired confidence level of 95%), tolerable misstatement = $212,500, and expected misstatement = $63,750. Required: a. Calculate the sample size and sampling interval using Table 8-5. (Use the tables, not IDEA, to solve for these problems. Round your interval answer to the nearest whole number.) Sample size Sampling interval b. Hon Zhu, staff accountant, performed the audit procedures listed in the inventory audit program for each sample item. Using the sample size computed in part (a) and Table 9-3, calculate the upper limit on misstatement based on the following misstatements. What should Hon conclude about Coomes' inventory account? (Use the tables, not IDEA, to solve for these problems. Round your intermediate calculations to 3 decimal places. Round your answer to the nearest dollar amount.) Error Number Book Value $ 6,000 24,000 55,000 Audit Value $1,000 9.000 5,000 UML TABLE 8-5 Statistical Sample Sizes for Attribute Sampling-95 Percent Desired Confidence Level (i.e., 5 Percent Risk of Incorrect Acceptance) Expected Population Deviation Rate Tolerable Deviation Rate* 6% 7% 2% 3% 4% 5% 8% 10% 15% 9% 32(0) 99(0) 0.00% .25 149(0) 236(1) 157(1) 49(0) 78(1) 78(1) 78(1) 36(0) 58(1) 58(1) 51(1) .50 51(1) 157(1) 208(2) 740) 117(1) 117(1) 117(1) 156(2) 156(2) 192(3) 227(4) 5111) 7811) 58(1) 58(1) 59(0) 93(1) 93(1) 93(1) 93(1) 124(2) 1242) 153(3) 181(4) 208(5) 51(1) .75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 58(1) 51(1) 78(1) 103(2) 103(2) 5811) 77(2) 42(0) 66(1) 66(1) 66(1) 66(1) 66(1) 66(1) 8812) 88(2) 88(2) 109(3) 109(3) 129(4) 148(5) 167(6) 185(7) 51(1) 51(1) 68(2) 29(0) 46(1) 46(1) 46(1 46(1) 46(1) 46(1) 46(1) 46(1) 61(2) 61(2) 61(2) 6112) 61(2) 19(0) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 127(3) 6812) 127(3) 150(4) 173(5) 2.75 195(6) 3.00 3.25 77(2) 77(2) 77(2) 95(3) 95(3) 112(4) 112(4) 129(5) 146(6) 68(2) 68(2) 84(3) 84(3) 84(3) 100(4) 3.50 76(3) 76(3) 40(2) 3.75 4.00 5.00 6.00 7.00 100(4) 15818) 89(4) 116(6) 179(11) 40(2) 40(2) 40(2) 50(3) 68(5) "Sample size is too large to be cost-effective for most audit applications. The number in parentheses represents the maximum number of deviations in a sample of that size that allows the auditor to conclude that the tolerable deviation rate is not exceeded. TABLE 9-3 Monetary Unit Sampling Misstatement Factors for Sample Evaluation 95% Desired Confidence Level Number of Misstatements 90% Desired Confidence Level Misstatement Incremental Factor Increase Misstatement Factor Incremental Increase 2.3 3.0 3.9 1.6 5.3 OMO 6.6 1.3 1.3 10.3 10.3 1.2 11.5 7 The misstatement factors in Table 9-3 are based on computed upper deviation rate factors used in attribute sampling (based on the binomial distribution). In MUS, the sampling interval and the tainting factor are used in the evalua- tion, and as later illustrated, the original computed sample size is not used in the evaluation approach when using the attribute sampling tables. When the population is large and the misstatement rate is low (both common for MUS applications using accounting data), the limiting form of the binomial distribution is the Poisson distribution, which only requires the level of confidence to determine the appropriate misstatement factor to compute the upper misstate- ment limit (see Leslie et al., 1979, Dollar Unit Sampling). The Poisson distribution factors are nearly identical to the misstatement factors in Table 9-3. The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation for the fiscal year ended October 31. Michelle Le, the partner in charge of the audit, decides that MUS is the appropriate sampling technique to use in order to audit Coomes' inventory account. The balance in the inventory at October 31 was $4,250,000. Michelle has established the following: risk of incorrect acceptance = 5% (.e., the desired confidence level of 95%), tolerable misstatement = $212,500, and expected misstatement = $63,750. Required: a. Calculate the sample size and sampling interval using Table 8-5. (Use the tables, not IDEA, to solve for these problems. Round your interval answer to the nearest whole number.) Sample size Sampling interval b. Hon Zhu, staff accountant, performed the audit procedures listed in the inventory audit program for each sample item. Using the sample size computed in part (a) and Table 9-3, calculate the upper limit on misstatement based on the following misstatements. What should Hon conclude about Coomes' inventory account? (Use the tables, not IDEA, to solve for these problems. Round your intermediate calculations to 3 decimal places. Round your answer to the nearest dollar amount.) Error Number Book Value $ 6,000 24,000 55,000 Audit Value $1,000 9.000 5,000 UML TABLE 8-5 Statistical Sample Sizes for Attribute Sampling-95 Percent Desired Confidence Level (i.e., 5 Percent Risk of Incorrect Acceptance) Expected Population Deviation Rate Tolerable Deviation Rate* 6% 7% 2% 3% 4% 5% 8% 10% 15% 9% 32(0) 99(0) 0.00% .25 149(0) 236(1) 157(1) 49(0) 78(1) 78(1) 78(1) 36(0) 58(1) 58(1) 51(1) .50 51(1) 157(1) 208(2) 740) 117(1) 117(1) 117(1) 156(2) 156(2) 192(3) 227(4) 5111) 7811) 58(1) 58(1) 59(0) 93(1) 93(1) 93(1) 93(1) 124(2) 1242) 153(3) 181(4) 208(5) 51(1) .75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 58(1) 51(1) 78(1) 103(2) 103(2) 5811) 77(2) 42(0) 66(1) 66(1) 66(1) 66(1) 66(1) 66(1) 8812) 88(2) 88(2) 109(3) 109(3) 129(4) 148(5) 167(6) 185(7) 51(1) 51(1) 68(2) 29(0) 46(1) 46(1) 46(1 46(1) 46(1) 46(1) 46(1) 46(1) 61(2) 61(2) 61(2) 6112) 61(2) 19(0) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 30(1) 127(3) 6812) 127(3) 150(4) 173(5) 2.75 195(6) 3.00 3.25 77(2) 77(2) 77(2) 95(3) 95(3) 112(4) 112(4) 129(5) 146(6) 68(2) 68(2) 84(3) 84(3) 84(3) 100(4) 3.50 76(3) 76(3) 40(2) 3.75 4.00 5.00 6.00 7.00 100(4) 15818) 89(4) 116(6) 179(11) 40(2) 40(2) 40(2) 50(3) 68(5) "Sample size is too large to be cost-effective for most audit applications. The number in parentheses represents the maximum number of deviations in a sample of that size that allows the auditor to conclude that the tolerable deviation rate is not exceeded. TABLE 9-3 Monetary Unit Sampling Misstatement Factors for Sample Evaluation 95% Desired Confidence Level Number of Misstatements 90% Desired Confidence Level Misstatement Incremental Factor Increase Misstatement Factor Incremental Increase 2.3 3.0 3.9 1.6 5.3 OMO 6.6 1.3 1.3 10.3 10.3 1.2 11.5 7 The misstatement factors in Table 9-3 are based on computed upper deviation rate factors used in attribute sampling (based on the binomial distribution). In MUS, the sampling interval and the tainting factor are used in the evalua- tion, and as later illustrated, the original computed sample size is not used in the evaluation approach when using the attribute sampling tables. When the population is large and the misstatement rate is low (both common for MUS applications using accounting data), the limiting form of the binomial distribution is the Poisson distribution, which only requires the level of confidence to determine the appropriate misstatement factor to compute the upper misstate- ment limit (see Leslie et al., 1979, Dollar Unit Sampling). The Poisson distribution factors are nearly identical to the misstatement factors in Table 9-3