Question

Upper Limit on Misstatements Calculation: Monetary Unit Sampling. Jordan Thomas is using MUS to examine a...

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?

 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.