Calculate basic precision and incremental allowance

Reference no: EM132492293

Part 1

In performing a test of controls for sales order approvals, the CPAs stipulate a tolerable deviation rate of 8 percent with a risk of assessing control risk too low of 5 percent. They anticipate a deviation rate of 2 percent.
Q1. What type of sampling plan should the auditors use for this test?
Q2. Using the appropriate table or formula from this chapter, compute the required sample size for the test.
Q3. Assume that the sample indicates four deviations. May the CPAs conclude with a 5 percent risk of assessing control risk too low that the population deviation rate does not exceed the tolerable rate of 8 percent?

Part 2
During an audit of Rottel Company, an auditor needs to estimate the total value of the 5,000 invoices processed during June. She estimates the standard deviation of the population to be $30. Determine the size of the sample the auditor would select when using mean-per-unit sampling and
Q1. tolerable misstatement = $45,500
Q2. risk of incorrect acceptance = 5.0 percent
Q3. risk of incorrect rejection = 4.6 percent

Part 3
Edwards has decided to use monetary unit sampling (MUS) in the audit of a client's accounts receivable balance. Few, if any, misstatements of the account balance are expected.

Use the MUS Excel template (THE NEXT FILE IN THIS MODULE) to complete following requirements.

Required:
a. Identify the advantages of using MUS over classical variables sampling.

b. Calculate the sampling interval and the sample size Edwards should use given the following information:

Tolerable misstatement	$ 50,000
Risk of incorrect acceptance	5%
Estimated misstatement	$ 15,000
Recorded amount of accounts receivable	$3,000,000

What is the effect on sample size of changing the risk of incorrect acceptance to 1%?

c. Using the 5% Risk of incorrect acceptance, calculate the total projected misstatement if the following three errors were discovered in MUS:

Misstatement	Book Value	Audited Value
1	$ 400	$ 320
2	500	0
3	15,000	12,500

d. Calculate basic precision and incremental allowance.
e. Calculate the upper limit on misstatements.
f. Will you accept or reject the account as materially correct?

Submit your completed Excel spreadsheet and word document answering the above questions and submit them in the Submission File titled Data Analytics Case.

Reference no: EM132492293

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