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?

 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