Williams,CPA intends to use probability-proportional-to-size sampling.He has properly selected and audited a sample of 100 accounts receivable from his client's population of 3000 accounts.He calculated a sampling interval of $5,000 and the tolerable misstatement for the account is $40,000.He has the following table available: Williams also recalls that "basic precision" is equal to the appropriate reliability factor multiplied times the sampling interval.He wishes to accept a risk of incorrect acceptance of 10 percent.
He found that 97 of the 100 accounts in the sample were properly calculated.However,the following three errors existed: $$\begin{array} { c c }
\text { Book Value } & \text { Audited Value } \
\$ 50 & \$ 49 \
400 & 300 \
8,000 & 6,000
\end{array}$$ a.Calculate the projected misstatement.
b.Calculate the basic precision.
c.Calculate the incremental allowance.
d.Calculate the upper limit on misstatement.
e.Explain how the auditors would consider the results calculated above.

Question

Williams,CPA intends to use probability-proportional-to-size sampling.He has properly selected and audited a sample of 100 accounts receivable from his client's population of 3000 accounts.He calculated a sampling interval of $5,000 and the tolerable misstatement for the account is $40,000.He has the following table available:  Williams also recalls that "basic precision" is equal to the appropriate reliability factor multiplied times the sampling interval.He wishes to accept a risk of incorrect acceptance of 10 percent.
He found that 97 of the 100 accounts in the sample were properly calculated.However,the following three errors existed: $$\begin{array} { c c } 
\text { Book Value } & \text { Audited Value } \
\$ 50 & \$ 49 \
400 & 300 \
8,000 & 6,000
\end{array}$$ a.Calculate the projected misstatement.
b.Calculate the basic precision.
c.Calculate the incremental allowance.
d.Calculate the upper limit on misstatement.
e.Explain how the auditors would consider the results calculated above.

Quizplus · Accepted Answer

The Answer of Williams,CPA intends to use probability-proportional-to-size sampling.He has properly selected and audited a sample of 100 accounts receivable from his client's population of 3000 accounts.He calculated a sampling interval of $5,000 and the tolerable misstatement for the account is $40,000.He has the following table available:  Williams also recalls that "basic precision" is equal to the appropriate reliability factor multiplied times the sampling interval.He wishes to accept a risk of incorrect acceptance of 10 percent.
He found that 97 of the 100 accounts in the sample were properly calculated.However,the following three errors existed: $$\begin{array} { c c } 
\text { Book Value } & \text { Audited Value } \
\$ 50 & \$ 49 \
400 & 300 \
8,000 & 6,000
\end{array}$$ a.Calculate the projected misstatement.
b.Calculate the basic precision.
c.Calculate the incremental allowance.
d.Calculate the upper limit on misstatement.
e.Explain how the auditors would consider the results calculated above.

Williams,CPA Intends to Use Probability-Proportional-To-Size Sampling Book Value Audited Value $50$494003008,0006,000\begin{array} { c c } \text { Book Value } & \text { Audited Value } \\\$ 50 & \$ 49 \\400 & 300 \\8,000 & 6,000\end{array} Book Value $504008,000​ Audited Value $493006,000​

Williams,CPA Intends to Use Probability-Proportional-To-Size Sampling $\begin{array} { c c } \text { Book Value } & \text { Audited Value } \\\$ 50 & \$ 49 \\400 & 300 \\8,000 & 6,000\end{array}$