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The auditors of Kansas Corporation wish to use a structured approach to nonstatistical sampling to...

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Finance

The auditors of Kansas Corporation wish to use a structured approach to nonstatistical sampling to evaluate the reasonableness of the accounts receivable. Kansas has 30,000 receivable accounts with a total book value of $5,140,000. The auditors have assessed the combined level of inherent and control risk at a moderate level and believe that their other substantive procedures are so limited as to require a maximum risk assessment. After considering the overall audit plan, the auditors believe that the tests tolerable misstatement is $86,500. Refer Figure 9-19.

Required:

a. Calculate the required sample size.

b. Assuming the following results:

Number of items in sample 235
Total audited value of sample items $32,900
Total book value of sample items $35,400

(1) Use the ratio estimation method to calculate the projected misstatement of the population.

(2) Use the difference estimation method to calculate the projected misstatement of the population.

c. Use the results of ratio estimation method and difference estimation method to arrive at a conclusion as to whether to accept or reject the population.

Ratio estimation method

Difference estimation method

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