You are using statistical sampling to confirm accounts receivable of Pittance Manufacturing Company. The population of accounts receivable is as follows:

You review the accounts receivable trial balance and observe that there are several extremely large balances.
The sample is designed to include the 50 largest accounts, which total \($6,843,902\), and a random selection of 160 of the remaining amounts. This sample size is based on the following criteria:

The sample when audited contains 24 errors, none of which are in the 50 largest accounts. These are detailed as follows:

Required:

a. Evaluate the results using difference estimation.

b. In inspecting the sample items in error, you notice ten of them are due to the late recording of credit memos. As a result, you examine all credit memos issued after year-end, determine the total applicable to the audit period, and enter the total \($201,615)\ on your schedule of possible adjustments. The ten credit-memo-related errors are items numbered 2, 5, 6, 9, 13, 16, 18, 19, 22, and 24. Recalculate the confidence limits for both ratio and difference estimation. Is the population now acceptable?

c. Evaluate the acceptability of eliminating a specific type of error by performing additional audit tests to determine the population value of these errors.

Transcribed Image Text:

Number of accounts. 8,150 Total recorded book value $23,689,423