Question

Upper Limit on Misstatements Calculation: Monetary Unit Sampling. Jordan Thomas is using MUS to examine a client’s accounts receivable balance. Using a risk of incorrect acceptance of 5%, a tolerable misstatement of $65,000, a sample size of 100 items and a sampling interval of $12,300, Thomas identified the following misstatements:

Item | Recorded Balance | Audited Value |

1 | $15,000 | $12,500 |

2 | 10,000 | 4,000 |

3 | 3,000 | 2,000 |

**Questions:**

**1) What is the projected misstatement?**

**2) What is the basic allowance for sampling
risk?**

**3) What is the incremental allowance for sampling
risk?**

Answer #1

1. Projected Misstatement |
|||||

Projected Misstatement = Recorded Balance - Audited Balance | |||||

Projected Misstatement = $ 28000 - $18500 =
$9500 |
|||||

2. Basic Allowance for Sampling Risk |
|||||

Basic Allowance for Sampling Risk = Sampling Interval * Confidence factor (RIA) | |||||

Basic Allowance for Sampling Risk = $12,300 * 3(RIA) | |||||

Basic Allowance for Sampling Risk = $36,900 |
|||||

3. Incremental Allowance for sampling risk |
|||||

Incremental Allowance for sampling risk = Projected Misstatement * Incremental confidence factor | |||||

Incremental Confidence Factor = 4.75 - 3 = 1.75 | |||||

Incremental Allowance for sampling risk = $ 9500 * 1.75 =
$16625 |

If you have any query, feel free to ask.

Upper Limit on Misstatements Calculation: Monetary Unit
Sampling. Jordan Thomas is using MUS to examine a client’s accounts
receivable balance. Using a risk of incorrect acceptance of 5%, a
tolerable misstatement of $65,000, a sample size of 100 items and a
sampling interval of $12,300, Thomas identified the following
misstatements:
Item
Recorded Balance
Audited Value
1
$15,000
$12,500
2
10,000
4,000
3
3,000
2,000
Questions:
1) What is the projected misstatement?
2) What is the basic allowance for sampling
risk?...

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an expected misstatement of $25,200.
a. Calculate the sample size and sampling interval.
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Below are descriptions of how key parameters are determined in a
monetary unit sampling application. Indicate, using the correct
letter, which parameter is most closely associated with the
description. Each parameter is associated with only one
description.
A) Tainting percentage.
B) Sample size.
C) Actual misstatement.
D) Population size.
E) Expected misstatement.
F) Tolerable misstatement.
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balances.
Determined based on the recorded amount of the account balance
or class...

Below are
descriptions of how key parameters are determined in a monetary
unit sampling application. Indicate, using the correct letter,
which parameter is most closely associated with the description.
Each parameter is associated with only one
description.
A) Tainting
percentage.
B) Sample
size.
C) Actual
misstatement.
D) Population
size.
E) Expected
misstatement.
F) Tolerable
misstatement.
1. Estimated based on
prior audits or a pilot sample of current balances.
?2. Determined based
on the recorded amount of the account balance or...

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a. Calculate the sample size and sampling interval.
b. Regardless of your answer to (a), use a sample size of 125
and the related sampling interval and calculate the upper limit on
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AP10.7 (LO 8) PPS sampling Edwards
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Edwards plans to use the following PPS sampling table:
5% RELIABILITY FACTORS FOR
OVERSTATEMENTS
Number of
Overstatements
Risk of Incorrect Acceptance
1%
5%
10%
15%
20%
0
4.61
3.00
2.31
1.90
1.61
1
6.64
4.75
3.89
3.38
3.00
2
8.41
6.30
5.33...

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