In Smith, Inc., Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of...
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Accounting
In Smith, Inc., Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 9,400 receivable accounts with a total book value of $1,535,000. Robertson estimates the population's standard deviation to be equal to $26. After examining the overall audit plan, the auditors believe that the account's tolerable misstatement is $69,000, and that a risk of incorrect rejection of 5 percent and a risk of incorrect acceptance of 10 percent are appropriate. Assuming the following results: Book value of items in sample = $151 Average audited value of items in sample = $142 Standard deviation of sample = $30 a. Use the ratio method to calculate: 1. Projected misstatement 2. Estimated total audited value b. Use the difference estimation method to calculate: 1. Projected misstatement 2. Estimated total audited value
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