Edwards has decided to use probability-proportional-to-size (PPS) sampling, sometimes called dollar-unit sampling, in the audit of a client's accounts receivable balance. Few, if any, misstatements of the account balance are expected. Edwards plans to use the following PPS sampling table:

Required:

a. Identify the advantages of using PPS sampling over classical variables sampling.

b. Calculate the sampling interval and the sample size Edwards should use given the following information.

Requirements (c) through (f) are not related to (a) and (b).

c. Assuming a sampling interval of $5,000, calculate the total projected misstatement if the following three errors were discovered in a PPS sample:

Transcribed Image Text:

Number ofOverstatement Misstatements 0 2 3 4 Risk of Incorrect Acceptance 1% 5% 4.61 3.00 6.64 4.75 8.41 6.30 10.05 7.76 11.61 9.16 10% 2.31 3.89 5.33 6.69 8.00 15% 1.90 3.38 4.72 6.02 7.27 20% 1.61 3.00 4.28 5.52 6.73 Tolerable misstatement Risk of incorrect acceptance Estimated misstatement $15,000 5% $0 Recorded amount of accounts receivable $300,000 Misstatement Book Value Audited Value 1 2 5 $ 400 500 6,000 $ 320 0 2,500 Number ofOverstatement Misstatements 0 2 3 4 Risk of Incorrect Acceptance 1% 5% 4.61 3.00 6.64 4.75 8.41 6.30 10.05 7.76 11.61 9.16 10% 2.31 3.89 5.33 6.69 8.00 15% 1.90 3.38 4.72 6.02 7.27 20% 1.61 3.00 4.28 5.52 6.73 Tolerable misstatement Risk of incorrect acceptance Estimated misstatement $15,000 5% $0 Recorded amount of accounts receivable $300,000 Misstatement Book Value Audited Value 1 2 5 $ 400 500 6,000 $ 320 0 2,500

Answer rating: 100% (QA)

a The advantages of using PPS sampling is that articulate its valu... View the full answer