You intend to use dollar unit sampling as a part of the audit of several accounts for Rovnpower Manufacturing Company. You have done the audit for the past several years, and there has rarely been an adjusting entry of any kind. Your audit tests of all tests of transactions cycles were completed at an interim date, and the controls have been evaluated as excellent. You therefore decide to use a confidence level of 75% for all direct tests of balances.

You intend to use dollar unit sampling in the audit of the three most material asset balance-sheet account balances: accounts receivable, inventory, and marketable securities. You feel justified in using the same confidence level for each audit area because the controls in each area are excellent.

The recorded balances and related information for the three accounts are as follows:

Net earnings before taxes for Roynpower are \($2,000,000\). You decide that a combined error of SI00,000 is allowable for the client.
The audit approach that will be followed is to determine the total sample size needed for all three accounts. A sample will be selected from all \($10\) million, and the appropriate testing lor a sample item will depend on whether the item is a receivable, inventory, or marketable security. The audit conclusions will pertain to the entire \($10,000,000,\) and no conclusion will be made about the three individual accounts unless significant errors are found in the sample.
Required :

a. Evaluate the audit approach of testing all three account balances in one sample.

b. Calculate the required sample size (or all three accounts.

c. Calculate the required sample size for each of the three accounts assuming vou decide that the allowable error in each account is \($50,000\).

d. Assume you select the random sample using a seven-digit random number table. How would you identify which sample item in the population to audit for the number 4,627,871 ? What audit procedures would be performed ?

e. Assume you select a sample of 200 sample items for testing and you find one error in inventory. The recorded value is \($987.12\), and the audit value is \($887.12\). Calculate the error bounds for the three combined accounts, and reach appropriate audit conclusions.

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Accounts receivable Inventory Marketable securities Recorded value $ 3,600,000 4,800,000 1,600,000 $10,000,000