Comprehensive Problem: Monetary Unit Sampling. Dylan Mays is auditing the accountsreceivable of Channel Company. Channel’s accounts receivable were recorded at $2,000,000and comprised more than 1,500 customer accounts. However, Channel’s ten largest customers’ balances comprised a high percentage of the recorded accounts receivable (over$500,000, or 25 percent). As a result, Mays is considering the use of MUS.Based on prior audits and other judgments, Mays has established the following parameters: Risk of incorrect acceptance 5% Tolerable misstatement $120,000 Expected misstatement $ 24,000 Required:a. Briefly identify what factors Mays should consider in determining sample size and howthese factors would be assessed.b. Calculate the necessary sample size and sampling interval used by Mays in the audit ofChannel Company.c. Given the information in part (b), describe how Mays would select the sample fromChannel’s computerized accounts receivable ledger.d. [Note: Part (d) is unrelated to parts (b) and (c).] If Mays detected the following threemisstatements, determine the projected misstatement. Recorded Balance Audited Value Sampling Interval $ 45,000 $ 40,000 $ 13,000 8,000 6,000 13,000 12,000 9,000 13,000 e. Based on the results in part (d) and a 5 percent risk of incorrect acceptance, calculate theupper limit on misstatements.f. Based on the calculation in part (e), determine what Mays’s conclusion would be withrespect to Channel Company’s accounts receivable.
Comprehensive Problem: Monetary Unit Sampling. Dylan Mays is auditing the
receivable
and comprised more than 1,500 customer accounts. However, Channel’s ten largest customers’ balances comprised a high percentage of the recorded accounts receivable (over
$500,000, or 25 percent). As a result, Mays is considering the use of MUS.
Based on prior audits and other judgments, Mays has established the following parameters:
| Risk of incorrect acceptance | 5% |
| Tolerable misstatement | $120,000 |
| Expected misstatement | $ 24,000 |
Required:
a. Briefly identify what factors Mays should consider in determining
these factors would be assessed.
b. Calculate the necessary sample size and sampling interval used by Mays in the audit of
Channel Company.
c. Given the information in part (b), describe how Mays would select the sample from
Channel’s computerized accounts receivable ledger.
d. [Note: Part (d) is unrelated to parts (b) and (c).] If Mays detected the following three
misstatements, determine the projected misstatement.
| Recorded Balance | Audited Value | Sampling Interval |
| $ 45,000 | $ 40,000 | $ 13,000 |
| 8,000 | 6,000 | 13,000 |
| 12,000 | 9,000 | 13,000 |
e. Based on the results in part (d) and a 5 percent risk of incorrect acceptance, calculate the
upper limit on misstatements.
f. Based on the calculation in part (e), determine what Mays’s conclusion would be with
respect to Channel Company’s accounts receivable.
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