The following questions concern the determination of the proper sample size in simple attributes sampling using dollar unit sampling.

a. For each column, 1 through 5, determine the initial sample size needed to satisfy the auditor’s requirements from the appropriate table.

b. Explain why the finite correction factor is not used for simple attributes, whereas it sometimes is used for physical unit attributes.

c. Using your understanding of the relationship between the factors above and sample size, state the effect on the initial sample size (increase or decrease) of changing each of the following factors while the other three are held constant:

(i)An increase in confidence level (ii)An increase in the desired upper precision limit (iii) An increase in the estimated population error rate (iv) An increase in the population value

d. Compare your answers in part c with the results you determined in part a. Which of the four factors appears to have the greatest effect on the initial sample size? Which one appears to have the least effect?

e. Why is the sample size referred to as the initial sample size?

f. Compare your answers in parts a and c to the corresponding questions in problem 3-20. Explain why the answers are the same or different.

Problem 3-20:

The following questions concern the determination of the proper sample size in attributes sampling:
• For each of the columns numbered 1 through 7, determine the initial sample size needed to satisfy the auditor’s requirements from the appropriate table in Figures 3-2 and 3-3. Wherever the sample size is more than 10 percent of the population, adjust it with the finite correction factor.

• Using your understanding of the relationship between the factors above and sample size, state the effect on the initial sample (increase or decrease) of changing each of the following factors while the other three are held constant:
(i) An increase in the confidence level
(ii) An increase in the desired upper precision limit
(iii) An increase in the estimated population error rate
(iv) An increase in the population size
• Compare your answers in part b with the results you determined in part a. Which of the four factors appears to have the greatest effect on the initial sample size ? Which one appears to have the least effect ?
• Why is the sample size referred to as the initial sample size?

Transcribed Image Text:

Confidence level Maximum dollars in the population that can contain compliance deviations before a control is considered unreliable Estimated population error rate Book value 1 2 3 4 5 90% 95% 95% 95% 95% $120,000 $6,000 $240 $30 $50,000 3% 3% 3% 3% 0% $2,000,000 $100,000 $6,000 $500 $1,000,000