# Accounting: Sampling Procedures

I'm working on 2 problems and am having trouble with them.

Analysis 13-1

As auditor for the Harder Company, you decide to use PPS sampling in determining the fairness of accounts receivable. In executing the plan, you discover the following misstatements:

Book Audit

Value Value

$1,500 $1,000

2,400 1,200

8,200 7,500

6,000 5,400

9,000 8,000

The book value of the accounts receivable is $720,000, the RF factor at a 5% risk of incorrect acceptance is 3.0, and sample size is 90. The incremental change in reliability factors for the first four misstatements are 1.75, 1.55, 1.46, and 1.40.

REQUIRED:

1. Calculate basic precision and the total projected misstatement.

2. Determine the incremental allowance for sampling risk and the upper misstatement limit.

3. State the quantitative conclusion that can be drawn from the sample assuming tolerable misstatement is $30,000.

Analysis 13-2

Assume the following data for Morris Company whose auditor employs non-statistical sampling to substantive testing:

DOLLAR VALUE BOOK VALUE OF

STRATUM OF RECEIVABLES POPULATION N n

1 Greater than $60,000 $ 700,000 10 10

2 $6,000 â?" $60,000 1,200,000 60 8

3 Less than $6,000 1,100,000 330 12

Total $ 3,000,000

400

30

BOOK VALUE AUDITED VALUE

STRATUM OF SAMPLE OF SAMPLE

1 $ 700,000 $ 697,000

2 360,000 357,000

3 72,000 69,000

Total $ 1,132,000

$ 1,123,000

REQUIRED:

1. Calculate the estimated audit value for each of the strata using the ratio method.

2. Calculate the estimated audit value for each of the strata using the difference method.

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#### Solution Preview

Hello

Please find the detailed solution of these two auditing questions in the attached file.

Ans. Analysis 13-1

(1). Calculation of Basic precision:

Book value of account receivables = $720000

Sample Size = 90

Sampling interval =

(Delaney & Whittington, 2010).

Sampling Interval = 720000/90 = $8000

Reliability Factor (RF) at 5% risk of incorrect acceptance = 3.0

Basic Precision = Reliability factor × Sampling interval

Basic precision = 3.0 × 8000 = $24000

Calculation of Total Projected Misstatement:

Project misstatement = Tainting percentage × Sampling interval

Book value

Audit value

Misstatement

Taint %

Sampling Interval

Projected Misstatement

(please see the attached file)

Total

$9,038

So, total project misstatement is $9038.

(2).Calculation of Incremental Allowances for Sample ...

#### Solution Summary

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