Reagan Simmons is conducting the audit of Ace Inc., and is using MUS to select a sample of inventory items for examination. The recorded balance in Ace’s inventory account was $ 1,200,000. In carrying out the sampling plan, Simmons established a risk of incorrect acceptance of 5 percent, a tolerable misstatement of $ 100,000, and an expected misstatement of $ 20,000.
a. What parameters would Simmons consider in determining the sample size for Ace’s inventory?
b. How would Simmons identify or establish each of these parameters?
c. Determine the necessary sample size for the audit of Ace’s inventory.
d. Based on the sample size determined in (c), determine the appropriate sampling interval.
e. Briefly describe how Simmons would select the sample from a computerized inventory list that Ace maintains.