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CHAPTER 9

# CHAPTER 9 - CHAPTER 9 9-7 Variation in the population the...

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CHAPTER 9 9-7 Variation in the population, the risk of incorrect acceptance, and tolerable and expected misstatement affect sample size in the following way: Desired confidence level : Direct, as the desired confidence level increases, the required sample size increases. Risk of material misstatement : Direct, as the risk of material misstatement increases the required sample size increases. Tolerable misstatement : Inverse, as tolerable misstatement increases, sample size decreases. Expected misstatement : Direct, an increase in expected misstatement results in an increase in sample size. 9-21 a. The advantages of MUS over classical variables sampling are as follows: MUS sampling is generally easier to use than is classical variables sampling. The calculation of sample size in a MUS sample is not based on an estimate of the standard deviation in the population. MUS sampling in conjunction with probability-proportional-to-size selection results in a stratified sample. Individually significant items are automatically identified. If no misstatements are expected, MUS will usually result in a smaller sample size than classical variables sampling. b. Using Table 8-5 in the text with a desired confidence level = 95%, tolerable misstatement = 5% (\$15,000 ÷ \$300,000), and expected misstatement = 2%, (\$6,000 ÷ \$300,000) sample size is equal to 181 items. The sampling interval is \$1,657 (\$300,000 ÷ 181). Using ACL with a desired confidence level = 95%; population = \$300,000; tolerable misstatement = \$15,000; and expected misstatement = \$6,000; the sample size is equal to 161 items. The sampling interval is \$1,853.93. c. The total projected misstatement for the three misstatements identified is calculated by first computing the tainting factor as follows: Misstatement Number Book Value Audit Value Tainting Factor 1 \$400 \$320 .20 2 500 0 1.00 3 3,000 2,500 Not applicable, since book value

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exceeds sampling interval.
The upper misstatement limit is calculated as follows: Misstatement Number Tainting Factor Sampling Interval Projected Misstatement (column 2 x 3) 95% Upper Limit

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