Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 405

Sample Size and Sampling Interval Determination: Monetary Unit Sampling. Casey Paul is considering the use of MUS in examining Stanley's accounts receivable, which were recorded at $300,000. Using the audit risk model. Paul has identified a necessary risk of incorrect acceptance of 10 percent and has established a tolerable misstatement of $25,000 and an expected misstatement of $10,000.
Required:
a. Determine the necessary sample size for the audit of Stanley's accounts receivable.
b. Based on the sample size determined in (a), what is the appropriate sampling interval?
c. Briefly describe how Paul would select the sample from a computerized customer list that Stanley maintains.
d. How would each of the following changes in Paul's sampling plan impact the sample size and sampling interval? For each change, use the original parameters noted in the problem background. (Verify your answer by calculating the sample size associated with each change.)
1. A reduction in the necessary level of the risk of incorrect acceptance to 5 percent.
2. An increase in the expected misstatement to $12,500.
3. A decrease in the tolerable misstatement to $20,000.