Which of the following set of conditions would provide the auditor with the smallest sample size under monetary unit sampling (RIA = risk of incorrect acceptance,EM = expected misstatement,TM = tolerable misstatement,PS = population size)?
A)RIA = 5 percent,EM = $7,500,TM = $15,000,PS = $150,000.
B)RIA = 5 percent,EM = $5,000,TM = $10,000,PS = $200,000.
C)RIA = 5 percent,EM = $2,000,TM = $10,000,PS = $100,000.
D)RIA = 5 percent,EM = $7,500,TM = $15,000,PS = $300,000.

Question

Quizplus · Accepted Answer

The formula for determining sample size in monetary unit sampling is:

Sample size = (PS x EM) / (TM x RIA)

Therefore, in order to have the smallest sample size, we want to minimize the numerator and maximize the denominator. This means we want a smaller expected misstatement (EM) and larger tolerable misstatement (TM) and population size (PS). Out of the given choices, option C has the smallest expected misstatement ($2,000), which will result in a smaller sample size. The other options have larger expected misstatements and/or smaller tolerable misstatements and/or population sizes, which will lead to larger sample sizes.

Which of the Following Set of Conditions Would Provide the Auditor