SCA is auditing a client's accounts receivable balance recorded at $10 million using MUS sampling.The following parameters have been established for this account: • Tolerable misstatement = $500,000
• Expected misstatement = $100,000
• Risk of incorrect acceptance = 10%
Which of the following statements would not be true with respect to the sample size in this situation?
A) The correct sample size is 69 customer accounts.
B) Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will reduce the sample size by 331 accounts.
C) If SCA wishes to reduce its exposure to the risk of incorrect acceptance to 5% (holding all other factors constant), sample size will be increased by 24 accounts.
D) Increasing expected misstatement to $200,000 (holding all other factors constant) will increase the sample size to 115 customer accounts.

Question

Quizplus · Accepted Answer

According to MUS sampling, decreasing tolerable misstatement will increase the sample size since a smaller tolerable misstatement requires a larger sample size to achieve an acceptable level of detection risk. Therefore, decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will increase the sample size. Choice A is true as it corresponds to the correct sample size based on the established parameters. Choice C is true as reducing the risk of incorrect acceptance increases the required sample size to achieve a lower level of detection risk. Choice D is true as increasing the expected misstatement will increase the sample size to ensure a higher likelihood of detecting misstatements.

SCA Is Auditing a Client's Accounts Receivable Balance Recorded at $10