The auditors of Loopy Limited wish to use a structured approach to non-statistical sampling to evaluate the reasonableness of the accounts receivable. Loopy has 6,800 accounts receivable with a total book value of $3,000,000. The auditors have assessed the combined level of inherent and control risk at a moderate level and believe that their other substantive procedures are so limited as to require a maximum risk assessment. After considering the overall audit plan, the auditors believe that the tolerable misstatement is $225,000.
(a) Calculate the required sample size.
(b) Assuming the following results: Number of items in the sample = 31;
Total audited value of sample items = $14,000;
Total book value of sample items = $15,000.
(1) Use the ratio estimation method to calculate the projected misstatement of the population.
(2) Use the difference estimation method to calculate the projected misstatement of the population.
(c) Use the results obtained in (b) to arrive at a conclusion as to whether to "accept" or "reject" the population.