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

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

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