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Assume that you are going to use nonstatistical sampling to evaluate the results of accounts receivable confirmation for the Bovar audit. Results...

Assume that you are going to use nonstatistical sampling to evaluate the results of accounts receivable confirmation for the Bovar audit. Results from previous audits have been excellent. Because of the high quality of the controls at Bovar, you have decided to use an acceptable risk of incorrect acceptance of 10%. There are 3,000 accounts receivable with a gross value of $9,601,883. You have decided that an overstatement or understatement of more than $150,000 would be considered material.

Complete the following:

  • Calculate the required sample size using the following formula:
    • Sample size = (book value of population / tolerable misstatement) x assurance factor
      • Assurance factor:
        • 5% ARIA = 3
        • 10% ARIA = 2
        • 20% ARIA = 1
  • Assume that instead of good results from previous audits, Bovar had poor results and the controls in place were questionable. Discuss the following:
    • How would this affect your sample size?
    • How would you use this information in your sample size determination?
    • How would you select the accounts for testing using systematic selection?
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Top Answer

1. Book Value of population =$9,601,883. Tolerable misstatement=$150,000 Acceptable risk of incorrect acceptance (ARIA) = 10%... View the full answer

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