The auditor is auditing accounts receivable for a long-time client that has good internal controls. The auditor has assessed control risk as low and assigns a control risk assessment of 20 % and a desired audit risk of 5 %. Other factors considered by the auditor:
1. The auditor will not be performing any other substantive audit procedures.
2. Inherent risk, by firm policy, is assessed at 1.00.
3. Client book value is $9,325,000.
4. Tolerable misstatement is assessed at $215,000.
5. Previous audits have shown an expected error of $45,000 over-statement is reasonable.
REQUIRED:
a- Calculate the detection risk
b- Calculate (and show the calculation) of the sample selection interval.
c- Assume the auditor rounds the sampling interval down to the next nearest $5,000. Calculate the approximate largest sample size the auditor would expect.
d- The auditor found the following differences when performing the audit work: