Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 518

Sample Size Relationships: Monetary Unit Sampling. Noel Frehley is examining the accounts receivable of Kiss Company and is considering the use of MUS. Kiss's accounts receivable are recorded at $400,000. Based on the necessary level of risk, Frehley has established a risk of incorrect acceptance of 5 percent. In addition, based on previous audits, Frehley estimates misstatements of $10,000. Finally, based on the overall level of performance materiality. Frehley has established tolerable misstatement at $20,000.
Required:
a. Determine the necessary sample size for Frehley's examination of Kiss Company's accounts receivable.
b. Assume that Frehley was interested in trying to reduce the necessary sample size. What are some options available in this regard?
c. Based on a discussion with the senior manager, Frehley knows that increasing the level of the risk of incorrect acceptance will reduce sample size. For the same level of expected misstatement, tolerable misstatement, and population size, determine the sample size for a risk of incorrect acceptance of 10 percent.