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L12 Notes_Part_18

# L12 Notes_Part_18 - PPS Sampling problem PPS Sampling(20...

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PPS Sampling problem PPS Sampling (20 points) Boyd has decided to use probability-proportional-to-size (PPS) sampling, sometimes calle dollar- unit sampling, in the audit of a client’s accounts receivable balance. Boyd has evaluated the client’s internal control and anticipates that misstatements will be found in the account balance (still for planning purposes assume zero errors). Boyd plans to use the following PPS sampling tables: n = (BV x R * ETF)/[TM (AM x EF)] I = BV/n Expansion factors for expected misstatements Acceptable Risk of Incorrect Acceptance (ARIA) Factor 1% 5% 10% 15% 20% 25% 30% 37% 50% 1.9 1.6 1.5 1.4 1.3 1.25 1.2 1.15 1.0 Reliability factors for misstatements of overstatements No. of Acceptable Risk of Incorrect Acceptance (assumes n=100) Over- statements1% 5% 10% 15% 20% 25% 30% 37% 50% 0 4.61 3.00 2.31 1.90 1.61 1.39 1.21 1.00 .70 1 6.64 4.75 3.89 3.38 3.00 2.70 2.44 2.14 1.68 2 8.41 6.30 5.33 4.72 4.28 3.93 3.62 3.25 2.68 3 10.05 7.76 6.69 6.02 5.52 5.11 4.77 4.34 3.68

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PPS Sampling Problem Boyd also determined the following information: Tolerable Misstatement for overstatements \$50,000 Tolerable Misstatement for understatements 100,000
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