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

Item	Recorded Balance	Audited Value
1	$              15,000	$       12,500
2	$              10,000	$         4,000
3	$                3,000	$         2,000
	$       28,000	$ 18,500

1	Projected misstatement (28000-18500)	$   9,500
2	Basic allowance for sampling risk = Sampling interval confidence factor (RIA) (12300*3 (RIA 5%))
		$ 36,900
3	Incremental allowance for sampling risk (9500*1.75)	$ 16,625
	Incremental Confidence Factor (4.75-3)	1.75