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.
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The upper misstatement limit is calculated as follows: Misstatement Number Tainting Factor Sampling Interval Projected Misstatement (column 2 x 3) 95% Upper Limit Increment (from Table 8-8*) Upper Misstatement (column 2 x 3 x 5) Basic Precision 1.0 $1,657 NA 3.0 $4,971 2 1.0 1,657 1,657 1.7 (4.7-3.0) 2,817 1 .20 1,657 331 1.5 (6.2-4.7) 497 Add misstatements detected in logical units greater than the sampling interval:
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This note was uploaded on 11/29/2009 for the course AMIS 627 taught by Professor Johnson during the Spring '08 term at Ohio State.

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

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