The recorded inventory balance for Faulk Company was $1,000,000 and comprised 2,500 customer accounts. Required: For each of the following independent sets of conditions, determine the appropriate sample size for the audit of Faulk's inventory using classical variables sampling (mean-per-unit estimation). (RIA= risk of incorrect acceptance, RIR = risk of incorrect rejection, TM = tolerable misstatement, EM = expected misstatement, SD = standard deviation.) (Roundup your answers to the nearest whole numbers.) a. RIA = 5%, RIR = 5%, TM= $50,000, EM= $20,000, SD = $40. b. RIA= 10%, RIR = 5%, TM= $50,000, EM= $20,000, SD = $40. RIA= 10%, RIR 10%, TM= $50,000, EM= $20,000, SD = $40. RIA = 5%, RIR = 5%, TM = $30,000, EM= $20,000, SD = $40. RIA= 5%, RIR = 5%, TM= $50,000, EM= $10,000, SD = $40. RIA= 5%, RIR = 5%, TM = $50,000, EM= $10,000, SD = $30. C. d. e. f. Sample Size

The recorded inventory balance for Faulk Company was $1,000,000 and comprised 2,500 customer accounts. Required: For each of the following independent sets of conditions, determine the appropriate sample size for the audit of Faulk's inventory using classical variables sampling (mean-per-unit estimation). (RIA= risk of incorrect acceptance, RIR = risk of incorrect rejection, TM = tolerable misstatement, EM = expected misstatement, SD = standard deviation.) (Roundup your answers to the nearest whole numbers.) a. RIA = 5%, RIR = 5%, TM= $50,000, EM= $20,000, SD = $40. b. RIA= 10%, RIR = 5%, TM= $50,000, EM= $20,000, SD = $40. RIA= 10%, RIR 10%, TM= $50,000, EM= $20,000, SD = $40. RIA = 5%, RIR = 5%, TM = $30,000, EM= $20,000, SD = $40. RIA= 5%, RIR = 5%, TM= $50,000, EM= $10,000, SD = $40. RIA= 5%, RIR = 5%, TM = $50,000, EM= $10,000, SD = $30. C. d. e. f. Sample Size

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter8: Specialized Audit Tools: Attributes Sampling, Monetary Unit Sampling, And Data Analytics Tools

Section: Chapter Questions

Problem 29RQSC

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Evaluating Results: Classical Variables Sampling. Kyle Berry is using mean-per-unit estimation in the audit of Leonard’s inventory balances. Leonard’s inventory is recorded at $240,000 and comprises 1,200 different items. Berry determined a sample size of 120 items and performed the appropriate substantive procedures. Based on this sample, he determined the following: Average audited value (per item) $204 Standard deviation of audited values $ 22 A summary of some additional parameters estimated by Berry follow: Tolerable misstatement $ 17,500 Expected misstatement $ 7,500 Risk of incorrect acceptance 5% Risk of incorrect rejection 10% Required:a. What is Berry’s estimate of the audited value of Leonard’s inventory?b. Calculate the precision and precision interval for Leonard’s inventory. Provide a briefdescription of the meaning of the precision interval.c. What is Berry’s conclusion with respect to Leonard’s inventory balance?d. Using a risk of incorrect…
An auditor is determining the appropriate sample size for testinginventory valuation using MUS. The population has 2,620 inventory items valued at$12,625,000. The tolerable misstatement is $500,000 at a 10% ARIA. No misstatementsare expected in the population. Calculate the preliminary sample size
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Upper Limit on Misstatements Calculations: Monetary Unit Sampling. Assume that Parker Fran has calculated a sampling interval for Tide Inc.’s inventory of $10,000 and has conducted an examination of a sample of inventory balances. Fran has identified the following three misstatements: Item No. Recorded Balance Audited Value X-21 $ 3,000 $ 1,200 Z-24 550 440 AA-02 6,000 1,500 Required:Calculate the upper limit on misstatements for the following levels of the risk of incorrect acceptance. In general, what relationship do you observe between the risk of incorrectacceptance and the upper limit on misstatements?a. 5 percent.b. 10 percent.
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Sample Size Relationships: Monetary Unit Sampling. Noel Frehley is examining theaccounts receivable of Kiss Company and is considering the use of MUS. Kiss’s accountsreceivable are recorded at $400,000. Based on the necessary level of risk, Frehley has established a risk of incorrect acceptance of 5 percent. In addition, based on previous audits,Frehley estimates misstatements of $10,000. Finally, based on the overall level of performance materiality, Frehley has established tolerable misstatement at $20,000.Required:a. Determine the necessary sample size for Frehley’s examination of Kiss Company’saccounts receivable.b. Assume that Frehley was interested in trying to reduce the necessary sample size. Whatare some options available in this regard?c. Based on a discussion with the senior manager, Frehley knows that increasing the level ofthe risk of incorrect acceptance will reduce sample size. For the same level of expectedmisstatement, tolerable misstatement, and population size,…
Sample Size Determination: Monetary Unit Sampling. The recorded accounts receivable balance for Warner Company was $500,000.Required:For each of the following independent sets of conditions, determine the appropriate samplesize for the examination of Warner’s accounts receivable in MUS. Based on the differencesin your calculations, identify the general relationship between different factors and samplesize. (RIA = risk of incorrect acceptance, TM = tolerable misstatement, EM = expectedmisstatement).a. RIA = 5%, TM = $50,000, EM = $10,000.b. RIA = 5%, TM = $50,000, EM = $25,000.c. RIA = 10%, TM = $50,000, EM = $10,000.d. RIA = 10%, TM = $50,000, EM = $25,000.