In Smith, Inc., Rachel Robertson wishes to use mean-per-unit sampling to evaluat
ID: 3219725 • Letter: I
Question
In Smith, Inc., Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 10000 receivable accounts with a total book value of $1,500,000. Robertson estimates the population's standard deviation to be equal to $25. After examining the overall audit plan, the auditors believe that the account's tolerable misstatement is $60,000, and that a risk of incorrect rejection of 5 percent and a risk of incorrect acceptance of 10 percent are appropriate. Use ACL. (Do not round any division. Round other computations and the final answers to the nearest whole value.)
Required: a. Calculate the required sample size. (Roundup your final answer to the next whole number.)
Assuming the following results: Book value of items in sample = $149
Average audited value of items in sample = $146
Standard deviation of sample = $28
b. Use the mean-per-unit method to:
(1) Calculate the point estimate of the account's audited value.
(2) Calculate the projected misstatement for the population.
(3) Calculate the adjusted allowance for sampling risk.
(4) State the auditors' conclusion in this situation (accept or reject).
Explanation / Answer
ANSWER : -
a) The required sample size = 182.25 183 accounts
b)
1. The point estimate of the account's audited value. = $1,460,000
2. The projected misstatement for the population = $40,000
3. The adjusted allowance for sampling risk = 33,451.86
4. The auditors' conclusion = 1,426,548.14 –1,493,451.86
BV of 1,500,000 is outside of interval and therefore materially misstated.
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