In confirming accounts receivable with a recorded value of ($6,250,000) for the Blessman Wholesale Drug Company, Gerald
Question:
In confirming accounts receivable with a recorded value of \($6,250,000\) for the Blessman Wholesale Drug Company, Gerald Bloomstad, CPA, has decided that if the total error in the account exceeds \($60,000\), he will consider the error material. He believes the point estimate of the error will approximate \($20,000\). He has decided to use unrestricted random sampling for difference estimation, and he believes a Beta risk of 5% and an Alpha risk of 20% are appropriate, considering the circumstances of the engagement. Although Bloomstad does not know the standard deviation, he decides to estimate it a little bit high to make sure he does not undersample. The standard deviation is estimated at \($22\). There are 14,300 total accounts receivable in the trial balance.
Required :
a. Calculate the number of accounts receivable Bloomstad should confirm.
b. Assuming only 100 confirmation responses are received in the first and second requests, what should the auditor do at this point ?
c. What would the sample size in part a have been if the estimated standard deviation were \($32\) instead of \($22\) ?
d. What would the sample size in part a have been if the allowable error were \($80,000\) and the expected point estimate were \($20,000\) ?
e. What would the sample size in part a have been if the allowable error were \($90,000\) and the expected point estimate were \($50,000?\) Explain the relationship between your answers in a and e.
Step by Step Answer:
Applications Of Statistical Sampling To Auditing
ISBN: 9780130391568
1st Edition
Authors: Alvin A. Arens, James K. Loebbecke