Sample Size Relationships: Monetary Unit Sampling. Noel Frehley is examining theaccounts receivable of Kiss Company and is considering the use of MUS. Kiss’s accountsreceivable 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’saccounts receivable.b. Assume that Frehley was interested in trying to reduce the necessary sample size. Whatare some options available in this regard?c. Based on a discussion with the senior manager, Frehley knows that increasing the level ofthe risk of incorrect acceptance will reduce sample size. For the same level of expectedmisstatement, tolerable misstatement, and population size, determine the sample size fora risk of incorrect acceptance of 10 percent.
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.
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