You are planning to use non statistical sampling to evaluate the results of AR confirmation for the Meridian Company. You have already performed tests of controls for sales, sales returns and allowances, and cash receipts, and they are considered excellent. Because of the quality of the controls, you decide to use an acceptable risk of incorrect acceptance of 10%. There are 3,000 accounts receivable with a gross value of $6,900,000. The accounts are similar in size and well be treated as a single stratum. An overstatement or understatement of more than $150,000 is considered material.
a. Calculate the required sample size. Assume your firm uses the following non statistical formula to determine sample size:
Sample Size = (Book Value of population/Tolerable misstatement) x Assurance Factor