Question

You are the auditor of Jexel, an auto air-conditioner service and repair company, and you have decided to use the mean-per-unit method to test the existence and gross valuation of recorded accounts receivable. The client's records include 9,600 accounts with a total book value of $1,270,000. You decide to use tolerable misstatement of $217,000, an incorrect acceptance risk of 20 percent, and an incorrect rejection risk of 15.0 percent. Using Excel, you estimated the standard deviation of the population as $34. Use Figure 9-8 to obtain the incorrect acceptance and rejection coefficients. Required: a. Determine the sample size. b. Assume you tested the sample and got the following results: The mean audited value of the accounts sampled was $131. Assuming that the standard deviation of the sample's audited value is also $34, what is the projected misstatement for the population? c. Assuming that the standard deviation of the sample's audited value is $29, what is the projected misstatement for the population? Required A Required B Required C Determine the sample size. (Roundup to the next whole number.) Sample size Required A Required BΣ.

Answer 1

a. Tolerable misstatement = $217,000

Planned allowance for sample risk = Tolerated misstament / [1 + (Incorrect acceptance coeff / Incorrect rejection coeff)

= 217,000 / [1 + (0.84 / 1.28)]

= 131,018.87

Sample size = (Population size * Incorrect rejection coeff * Estimate std dev / Planned allowance for sampling risk) ^ 2

= (9,600 * 1.28 * 34 / 131,018.87) ^ 2

= 10.17 or 10 accounts (rounded off)