An auditor is planning the confirmation of accounts receivable. The total of debit balances in the aged trial balance of receivables is $2 million. The auditor has decided that the tolerable misstatement (basic precision) for this sampling application is $50 000, the risk of incorrect acceptance is five per cent and zero error is expected. There are 2500 customer balances. The auditor has the following statistical tables available. The auditor decides to use dollar-unit sampling.(Use the following table to determine your answer.) Number of risk of incorrect acceptance:
The auditor's estimated sample size is approximately:
A) 120.
B) 80.
C) 200.
D) 160.

Question

An auditor is planning the confirmation of accounts receivable. The total of debit balances in the aged trial balance of receivables is $2 million. The auditor has decided that the tolerable misstatement (basic precision) for this sampling application is $50 000, the risk of incorrect acceptance is five per cent and zero error is expected. There are 2500 customer balances. The auditor has the following statistical tables available. The auditor decides to use dollar-unit sampling.(Use the following table to determine your answer.) Number of risk of incorrect acceptance:
 The auditor's estimated sample size is approximately:
A) 120. 
B) 80. 
C) 200. 
D) 160.

Quizplus · Accepted Answer

Using the table provided, the factor for 5% risk of incorrect acceptance and 0 expected misstatements is 2.83. The sample size can be calculated as:
Sample size = (Tolerable misstatement / Basic precision)² * (Total book value / Sampling interval)
Sampling interval = Total book value / Estimated number of sampling units
Sampling interval = $2,000,000 / 2,500 = $800
Sample size = ($50,000 / $800)² * ($2,000,000 / $800) * 2.83 = 120.05 (rounded up to 120)

Therefore, the best choice is A) 120.

An Auditor Is Planning the Confirmation of Accounts Receivable