Reference no: EM132973146
Question - Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 10,800 receivable accounts with a total book value of $1,575,000. Robertson estimates the population's standard deviation to be equal to $21. After examining the overall audit plan, the auditors believe that the account's tolerable misstatement is $69,000, and that a risk of incorrect rejection of 10 percent and a risk of incorrect acceptance of 15 percent are appropriate.
Required -
a. Calculate the required sample size.
Assuming the following results:
Book value of items in sample = $147
Average audited value of items in sample = $140
Standard deviation of sample = $26
b. Use the mean-per-unit method to:
(1) Calculate the point estimate of the account's audited value.
(2) Calculate the projected misstatement for the population.
(3) Calculate the adjusted allowance for sampling risk.
(4) State the auditors' conclusion in this situation (accept or reject).
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