L12 Notes_Part_15

# L12 Notes_Part_15 - 1,975,000 Acceptable Risk of Incorrect...

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The auditor has make the following estimates and decision: T olerable M isstatement for over and understatements TM \$60,000 A nticipated M isstatement for over and understatements AM 10,000 Recorded amount of accounts receivable (BV) 1,975,000 A cceptable R isk of I ncorrect A cceptance ARIA 10% Average percent of error assumption – overstatements ETF o 50% Average percent of error assumption – understatements ETF u 150% a. Calculate the sample size given both the over and understatement error assumptions. b. Calculate the upper and lower error bounds on the basis of the client errors in the sample c. Is the population acceptable as stated? If not, what options are available to the auditor at this point? Which option should the auditor select? Explain.

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The auditor has make the following estimates and decision: Tolerable Misstatement for overstatements TM = \$60,000 Anticipated Misstatement AM = 10,000 Recorded amount of accounts receivable (BV)
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Unformatted text preview: 1,975,000 Acceptable Risk of Incorrect Acceptance ARIA = 10% Average percent of error assumption overstatements 50% Average percent of error assumption understatements 150% PART a ETF Sample size for overstatements: 1975,000 *3 *.5/(60,000 (10,000*1.6)) = 67 Sample size for understatements: 1975,000 *3 *1.5/(60,000 (10,000*1.6)) = 202 Pull a sample of 202 as it satisfies both objectives Interval BV/n = 1975000/202 = 9777 Determine Sample Size with Different Error Assumptions Observations: Considering both over and understatements means that the Beta risk gets divided over two tails. The reliability factors are based on a one-tailed attribute sampling distribution. To have a beta risk of 10%, one can only allow 5% risk in each tail of the distribution, thus one should look at the 5% reliability factor when calculating the sample size and error limits for the overstatement and understatement case....
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## This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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L12 Notes_Part_15 - 1,975,000 Acceptable Risk of Incorrect...

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